Correlation Between NetApp and HP
Can any of the company-specific risk be diversified away by investing in both NetApp and HP 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 NetApp and HP into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between NetApp Inc and HP Inc, you can compare the effects of market volatilities on NetApp and HP 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 NetApp with a short position of HP. Check out your portfolio center. Please also check ongoing floating volatility patterns of NetApp and HP.
Diversification Opportunities for NetApp and HP
Very weak diversification
The 3 months correlation between NetApp and HP is 0.43. Overlapping area represents the amount of risk that can be diversified away by holding NetApp Inc and HP Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HP Inc and NetApp 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 NetApp Inc are associated (or correlated) with HP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of HP Inc has no effect on the direction of NetApp i.e., NetApp and HP go up and down completely randomly.
Pair Corralation between NetApp and HP
Given the investment horizon of 90 days NetApp Inc is expected to under-perform the HP. In addition to that, NetApp is 1.44 times more volatile than HP Inc. It trades about -0.07 of its total potential returns per unit of risk. HP Inc is currently generating about 0.15 per unit of volatility. If you would invest 3,251 in HP Inc on November 18, 2024 and sell it today you would earn a total of 113.00 from holding HP Inc or generate 3.48% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
NetApp Inc vs. HP Inc
Performance |
| Timeline |
| NetApp Inc |
| HP Inc |
NetApp and HP Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with NetApp and HP
The main advantage of trading using opposite NetApp and HP positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if NetApp position performs unexpectedly, HP 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 HP will offset losses from the drop in HP's long position.The idea behind NetApp Inc and HP Inc 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.
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