Correlation Between Summit Hotel and NETGEAR

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

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

Diversification Opportunities for Summit Hotel and NETGEAR

0.07

Correlation Coefficient

Summit Hotel  NETGEAR

Significant diversification

The 3 months correlation between Summit and NETGEAR is 0.07. Overlapping area represents the amount of risk that can be diversified away by holding Summit Hotel Properties and NETGEAR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NETGEAR and Summit Hotel 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 Summit Hotel Properties 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 Summit Hotel i.e., Summit Hotel and NETGEAR go up and down completely randomly.

Pair Corralation between Summit Hotel and NETGEAR

Considering the 90-day investment horizon Summit Hotel is expected to generate 3.39 times less return on investment than NETGEAR. But when comparing it to its historical volatility, Summit Hotel Properties is 1.82 times less risky than NETGEAR. It trades about 0.09 of its potential returns per unit of risk. NETGEAR is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest  1,473  in NETGEAR on September 25, 2024 and sell it today you would earn a total of  1,334  from holding NETGEAR or generate 90.56% return on investment over 90 days.

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

Summit Hotel Properties  vs.  NETGEAR

Summit Hotel Properties

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Summit Hotel Properties are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Summit Hotel is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the 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 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 Summit Hotel and NETGEAR

The main advantage of trading using opposite Summit Hotel and NETGEAR positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Summit Hotel 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 Summit Hotel Properties 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.