Correlation Between NETGEAR and American Airlines

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

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

Diversification Opportunities for NETGEAR and American Airlines

0.83

Correlation Coefficient

NETGEAR  American Airlines

Very poor diversification

The 3 months correlation between NETGEAR and American is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding NETGEAR and American Airlines Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Airlines and NETGEAR 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 NETGEAR are associated (or correlated) with American Airlines. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Airlines has no effect on the direction of NETGEAR i.e., NETGEAR and American Airlines go up and down completely randomly.

Pair Corralation between NETGEAR and American Airlines

Given the investment horizon of 90 days NETGEAR is expected to generate 1.27 times more return on investment than American Airlines. However, NETGEAR is 1.27 times more volatile than American Airlines Group. It trades about 0.09 of its potential returns per unit of risk. American Airlines Group is currently generating about 0.02 per unit of risk. If you would invest  1,449  in NETGEAR on September 4, 2024 and sell it today you would earn a total of  1,102  from holding NETGEAR or generate 76.05% return on investment over 90 days.

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

NETGEAR  vs.  American Airlines Group

NETGEAR

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in NETGEAR are ranked lower than 12 (%) 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.

American Airlines

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in American Airlines Group are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting basic indicators, American Airlines disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with NETGEAR and American Airlines

The main advantage of trading using opposite NETGEAR and American Airlines positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if NETGEAR position performs unexpectedly, American Airlines 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 American Airlines will offset losses from the drop in American Airlines' long position.

The idea behind NETGEAR and American Airlines Group 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.