Correlation Between NETGEAR and Stepstone

Can any of the company-specific risk be diversified away by investing in both NETGEAR and Stepstone at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining NETGEAR and Stepstone into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between NETGEAR and Stepstone Group, you can compare the effects of market volatilities on NETGEAR and Stepstone and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in NETGEAR with a short position of Stepstone. Check out your portfolio center. Please also check ongoing floating volatility patterns of NETGEAR and Stepstone.

Diversification Opportunities for NETGEAR and Stepstone

0.63

Correlation Coefficient

NETGEAR  Stepstone

Poor diversification

The 3 months correlation between NETGEAR and Stepstone is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding NETGEAR and Stepstone Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Stepstone Group and NETGEAR is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on NETGEAR are associated (or correlated) with Stepstone. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Stepstone Group has no effect on the direction of NETGEAR i.e., NETGEAR and Stepstone go up and down completely randomly.

Pair Corralation between NETGEAR and Stepstone

Given the investment horizon of 90 days NETGEAR is expected to generate 0.84 times more return on investment than Stepstone. However, NETGEAR is 1.19 times less risky than Stepstone. It trades about 0.21 of its potential returns per unit of risk. Stepstone Group is currently generating about -0.19 per unit of risk. If you would invest  2,446  in NETGEAR on September 19, 2024 and sell it today you would earn a total of  245.00  from holding NETGEAR or generate 10.02% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

NETGEAR  vs.  Stepstone Group

NETGEAR

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in NETGEAR are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Even with relatively fragile technical and fundamental indicators, NETGEAR reported solid returns over the last few months and may actually be approaching a breakup point.

Stepstone Group

Risk-Adjusted Performance

2 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Stepstone Group are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable technical and fundamental indicators, Stepstone is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with NETGEAR and Stepstone

The main advantage of trading using opposite NETGEAR and Stepstone positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if NETGEAR position performs unexpectedly, Stepstone can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Stepstone will offset losses from the drop in Stepstone's long position.

The idea behind NETGEAR and Stepstone Group pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.