Correlation Between NETGEAR and Sonos

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

By analyzing existing cross correlation between NETGEAR and Sonos Inc, you can compare the effects of market volatilities on NETGEAR and Sonos 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 Sonos. Check out your portfolio center. Please also check ongoing floating volatility patterns of NETGEAR and Sonos.

Diversification Opportunities for NETGEAR and Sonos

0.84

Correlation Coefficient

NETGEAR  Sonos

Very poor diversification

The 3 months correlation between NETGEAR and Sonos is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding NETGEAR and Sonos Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sonos Inc 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 Sonos. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sonos Inc has no effect on the direction of NETGEAR i.e., NETGEAR and Sonos go up and down completely randomly.

Pair Corralation between NETGEAR and Sonos

Given the investment horizon of 90 days NETGEAR is expected to generate 0.7 times more return on investment than Sonos. However, NETGEAR is 1.43 times less risky than Sonos. It trades about 0.06 of its potential returns per unit of risk. Sonos Inc is currently generating about 0.04 per unit of risk. If you would invest  2,467  in NETGEAR on September 12, 2024 and sell it today you would earn a total of  56.00  from holding NETGEAR or generate 2.27% return on investment over 90 days.

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

NETGEAR  vs.  Sonos Inc

NETGEAR

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in NETGEAR are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Even with relatively unsteady technical and fundamental indicators, NETGEAR reported solid returns over the last few months and may actually be approaching a breakup point.

Sonos Inc

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Sonos Inc are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of very conflicting basic indicators, Sonos displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with NETGEAR and Sonos

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

The idea behind NETGEAR and Sonos 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.

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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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.