Correlation Between NETGEAR and Two Harbors

Can any of the company-specific risk be diversified away by investing in both NETGEAR and Two Harbors 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 Two Harbors into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between NETGEAR and Two Harbors Investments, you can compare the effects of market volatilities on NETGEAR and Two Harbors 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 Two Harbors. Check out your portfolio center. Please also check ongoing floating volatility patterns of NETGEAR and Two Harbors.

Diversification Opportunities for NETGEAR and Two Harbors

0.03

Correlation Coefficient

NETGEAR  Two Harbors

Significant diversification

The 3 months correlation between NETGEAR and Two is 0.03. Overlapping area represents the amount of risk that can be diversified away by holding NETGEAR and Two Harbors Investments in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Two Harbors Investments 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 Two Harbors. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Two Harbors Investments has no effect on the direction of NETGEAR i.e., NETGEAR and Two Harbors go up and down completely randomly.

Pair Corralation between NETGEAR and Two Harbors

Given the investment horizon of 90 days NETGEAR is expected to under-perform the Two Harbors. In addition to that, NETGEAR is 7.4 times more volatile than Two Harbors Investments. It trades about -0.06 of its total potential returns per unit of risk. Two Harbors Investments is currently generating about 0.01 per unit of volatility. If you would invest  2,480  in Two Harbors Investments on December 21, 2024 and sell it today you would earn a total of  3.00  from holding Two Harbors Investments or generate 0.12% return on investment over 90 days.

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

NETGEAR  vs.  Two Harbors Investments

NETGEAR

Risk-Adjusted Performance

Very Weak

Over the last 90 days NETGEAR has generated negative risk-adjusted returns adding no value to investors with long positions. Even with latest inconsistent performance, the Stock's technical and fundamental indicators remain invariable and the latest agitation on Wall Street may also be a sign of long-running gains for the enterprise retail investors.

Two Harbors Investments

Risk-Adjusted Performance

Very Weak

Over the last 90 days Two Harbors Investments has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound fundamental indicators, Two Harbors is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with NETGEAR and Two Harbors

The main advantage of trading using opposite NETGEAR and Two Harbors positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if NETGEAR position performs unexpectedly, Two Harbors 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 Two Harbors will offset losses from the drop in Two Harbors' long position.

The idea behind NETGEAR and Two Harbors Investments 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 Transaction History module to view history of all your transactions and understand their impact on performance.