Correlation Between Stepstone and NETGEAR

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

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

Diversification Opportunities for Stepstone and NETGEAR

0.59

Correlation Coefficient

Stepstone  NETGEAR

Very weak diversification

The 3 months correlation between Stepstone and NETGEAR is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding Stepstone Group and NETGEAR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NETGEAR and Stepstone 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 Stepstone Group 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 Stepstone i.e., Stepstone and NETGEAR go up and down completely randomly.

Pair Corralation between Stepstone and NETGEAR

Given the investment horizon of 90 days Stepstone Group is expected to under-perform the NETGEAR. But the stock apears to be less risky and, when comparing its historical volatility, Stepstone Group is 1.2 times less risky than NETGEAR. The stock trades about -0.19 of its potential returns per unit of risk. The NETGEAR is currently generating about 0.32 of returns per unit of risk over similar time horizon. If you would invest  2,410  in NETGEAR on September 21, 2024 and sell it today you would earn a total of  519.50  from holding NETGEAR or generate 21.56% return on investment over 90 days.

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

Stepstone Group  vs.  NETGEAR

Stepstone Group

Risk-Adjusted Performance

2 of 100

Insignificant

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 latest stock price agitation, may contribute to short-term losses for the retail investors.

NETGEAR

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in NETGEAR are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Even with relatively inconsistent technical and fundamental indicators, NETGEAR reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Stepstone and NETGEAR

The main advantage of trading using opposite Stepstone and NETGEAR positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Stepstone 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 Stepstone Group 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.

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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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.