Correlation Between Super Micro and NETGEAR

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

By analyzing existing cross correlation between Super Micro Computer and NETGEAR, you can compare the effects of market volatilities on Super Micro and NETGEAR 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 Super Micro with a short position of NETGEAR. Check out your portfolio center. Please also check ongoing floating volatility patterns of Super Micro and NETGEAR.

Diversification Opportunities for Super Micro and NETGEAR

-0.58

Correlation Coefficient

Super Micro  NETGEAR

Excellent diversification

The 3 months correlation between Super and NETGEAR is -0.58. Overlapping area represents the amount of risk that can be diversified away by holding Super Micro Computer and NETGEAR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NETGEAR and Super Micro 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 Super Micro Computer are associated (or correlated) with NETGEAR. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NETGEAR has no effect on the direction of Super Micro i.e., Super Micro and NETGEAR go up and down completely randomly.

Pair Corralation between Super Micro and NETGEAR

Given the investment horizon of 90 days Super Micro is expected to generate 9.6 times less return on investment than NETGEAR. In addition to that, Super Micro is 4.26 times more volatile than NETGEAR. It trades about 0.0 of its total potential returns per unit of risk. NETGEAR is currently generating about 0.17 per unit of volatility. If you would invest  2,054  in NETGEAR on September 18, 2024 and sell it today you would earn a total of  526.00  from holding NETGEAR or generate 25.61% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Super Micro Computer  vs.  NETGEAR

Super Micro Computer

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Super Micro Computer has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong fundamental indicators, Super Micro is not utilizing all of its potentials. The recent stock price confusion, may contribute to short-horizon losses for the traders.

NETGEAR

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in NETGEAR are ranked lower than 13 (%) 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.

Pair Trading with Super Micro and NETGEAR

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

The idea behind Super Micro Computer and NETGEAR 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.

Check out your portfolio center.

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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.