Correlation Between Royalty Management and NETGEAR

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

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

Diversification Opportunities for Royalty Management and NETGEAR

-0.44

Correlation Coefficient

Royalty Management  NETGEAR

Very good diversification

The 3 months correlation between Royalty and NETGEAR is -0.44. Overlapping area represents the amount of risk that can be diversified away by holding Royalty Management Holding and NETGEAR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NETGEAR and Royalty Management 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 Royalty Management Holding 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 Royalty Management i.e., Royalty Management and NETGEAR go up and down completely randomly.

Pair Corralation between Royalty Management and NETGEAR

Assuming the 90 days horizon Royalty Management Holding is expected to generate 12.55 times more return on investment than NETGEAR. However, Royalty Management is 12.55 times more volatile than NETGEAR. It trades about 0.1 of its potential returns per unit of risk. NETGEAR is currently generating about 0.11 per unit of risk. If you would invest  1.33  in Royalty Management Holding on September 13, 2024 and sell it today you would lose (0.21) from holding Royalty Management Holding or give up 15.79% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	53.97%
Values	Daily Returns

Royalty Management Holding  vs.  NETGEAR

Royalty Management

Risk-Adjusted Performance

0 of 100

OK

Over the last 90 days Royalty Management Holding has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly weak basic indicators, Royalty Management showed solid returns over the last few months and may actually be approaching a breakup point.

NETGEAR

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in NETGEAR are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Even with relatively fragile technical and fundamental indicators, NETGEAR reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Royalty Management and NETGEAR

The main advantage of trading using opposite Royalty Management and NETGEAR positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Royalty Management 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 Royalty Management Holding 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.