Correlation Between Cars and NETGEAR
Can any of the company-specific risk be diversified away by investing in both Cars 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 Cars and NETGEAR into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Cars Inc and NETGEAR, you can compare the effects of market volatilities on Cars 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 Cars with a short position of NETGEAR. Check out your portfolio center. Please also check ongoing floating volatility patterns of Cars and NETGEAR.
Diversification Opportunities for Cars and NETGEAR
Very weak diversification
The 3 months correlation between Cars and NETGEAR is 0.41. Overlapping area represents the amount of risk that can be diversified away by holding Cars Inc and NETGEAR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NETGEAR and Cars 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 Cars Inc 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 Cars i.e., Cars and NETGEAR go up and down completely randomly.
Pair Corralation between Cars and NETGEAR
Given the investment horizon of 90 days Cars Inc is expected to generate 1.22 times more return on investment than NETGEAR. However, Cars is 1.22 times more volatile than NETGEAR. It trades about 0.44 of its potential returns per unit of risk. NETGEAR is currently generating about 0.29 per unit of risk. If you would invest 1,599 in Cars Inc on September 1, 2024 and sell it today you would earn a total of 388.00 from holding Cars Inc or generate 24.27% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Cars Inc vs. NETGEAR
Performance |
| Timeline |
| Cars Inc |
| NETGEAR |
Cars and NETGEAR Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Cars and NETGEAR
The main advantage of trading using opposite Cars and NETGEAR positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Cars 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 Cars Inc 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.| NETGEAR vs. Comtech Telecommunications Corp | NETGEAR vs. KVH Industries | NETGEAR vs. Silicom | NETGEAR vs. Knowles Cor |
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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.
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