Correlation Between Seagate Technology and NETGEAR

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

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

Diversification Opportunities for Seagate Technology and NETGEAR

-0.71

Correlation Coefficient

Seagate Technology  NETGEAR

Pay attention - limited upside

The 3 months correlation between Seagate and NETGEAR is -0.71. Overlapping area represents the amount of risk that can be diversified away by holding Seagate Technology PLC and NETGEAR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NETGEAR and Seagate Technology 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 Seagate Technology PLC 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 Seagate Technology i.e., Seagate Technology and NETGEAR go up and down completely randomly.

Pair Corralation between Seagate Technology and NETGEAR

Considering the 90-day investment horizon Seagate Technology PLC is expected to generate 0.7 times more return on investment than NETGEAR. However, Seagate Technology PLC is 1.42 times less risky than NETGEAR. It trades about 0.08 of its potential returns per unit of risk. NETGEAR is currently generating about 0.04 per unit of risk. If you would invest  4,756  in Seagate Technology PLC on September 18, 2024 and sell it today you would earn a total of  4,802  from holding Seagate Technology PLC or generate 100.97% return on investment over 90 days.

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

Seagate Technology PLC  vs.  NETGEAR

Seagate Technology PLC

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Seagate Technology PLC has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, Seagate Technology is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

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 Seagate Technology and NETGEAR

The main advantage of trading using opposite Seagate Technology and NETGEAR positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Seagate Technology 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 Seagate Technology PLC 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.