Correlation Between Passage Bio and NetScout Systems

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

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

Diversification Opportunities for Passage Bio and NetScout Systems

0.18

Correlation Coefficient

Passage Bio  NetScout Systems

Average diversification

The 3 months correlation between Passage and NetScout is 0.18. Overlapping area represents the amount of risk that can be diversified away by holding Passage Bio and NetScout Systems in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NetScout Systems and Passage Bio 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 Passage Bio are associated (or correlated) with NetScout Systems. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NetScout Systems has no effect on the direction of Passage Bio i.e., Passage Bio and NetScout Systems go up and down completely randomly.

Pair Corralation between Passage Bio and NetScout Systems

Given the investment horizon of 90 days Passage Bio is expected to generate 5.35 times more return on investment than NetScout Systems. However, Passage Bio is 5.35 times more volatile than NetScout Systems. It trades about 0.05 of its potential returns per unit of risk. NetScout Systems is currently generating about 0.11 per unit of risk. If you would invest  73.00  in Passage Bio on September 16, 2024 and sell it today you would earn a total of  3.00  from holding Passage Bio or generate 4.11% return on investment over 90 days.

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

Passage Bio  vs.  NetScout Systems

Passage Bio

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Passage Bio are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, Passage Bio reported solid returns over the last few months and may actually be approaching a breakup point.

NetScout Systems

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in NetScout Systems are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile fundamental indicators, NetScout Systems unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Passage Bio and NetScout Systems

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

The idea behind Passage Bio and NetScout Systems 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.