Correlation Between Deswell Industries and NETGEAR

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

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

Diversification Opportunities for Deswell Industries and NETGEAR

-0.18

Correlation Coefficient

Deswell Industries  NETGEAR

Good diversification

The 3 months correlation between Deswell and NETGEAR is -0.18. Overlapping area represents the amount of risk that can be diversified away by holding Deswell Industries and NETGEAR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NETGEAR and Deswell Industries 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 Deswell Industries 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 Deswell Industries i.e., Deswell Industries and NETGEAR go up and down completely randomly.

Pair Corralation between Deswell Industries and NETGEAR

Given the investment horizon of 90 days Deswell Industries is expected to generate 74.71 times less return on investment than NETGEAR. But when comparing it to its historical volatility, Deswell Industries is 1.37 times less risky than NETGEAR. It trades about 0.0 of its potential returns per unit of risk. NETGEAR is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  1,903  in NETGEAR on September 27, 2024 and sell it today you would earn a total of  981.00  from holding NETGEAR or generate 51.55% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	99.6%
Values	Daily Returns

Deswell Industries  vs.  NETGEAR

Deswell Industries

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Deswell Industries are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent basic indicators, Deswell Industries is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

NETGEAR

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in NETGEAR are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. Even with relatively unfluctuating technical and fundamental indicators, NETGEAR reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Deswell Industries and NETGEAR

The main advantage of trading using opposite Deswell Industries and NETGEAR positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Deswell Industries 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 Deswell Industries 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.