Correlation Between NATIONAL and NETGEAR

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

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

Diversification Opportunities for NATIONAL and NETGEAR

0.06

Correlation Coefficient

NATIONAL  NETGEAR

Significant diversification

The 3 months correlation between NATIONAL and NETGEAR is 0.06. Overlapping area represents the amount of risk that can be diversified away by holding NATIONAL AUSTRALIA BK and NETGEAR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NETGEAR and NATIONAL 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 NATIONAL AUSTRALIA BK 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 NATIONAL i.e., NATIONAL and NETGEAR go up and down completely randomly.

Pair Corralation between NATIONAL and NETGEAR

Assuming the 90 days trading horizon NATIONAL is expected to generate 24.67 times less return on investment than NETGEAR. But when comparing it to its historical volatility, NATIONAL AUSTRALIA BK is 9.28 times less risky than NETGEAR. It trades about 0.06 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  1,442  in NETGEAR on September 22, 2024 and sell it today you would earn a total of  1,358  from holding NETGEAR or generate 94.17% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	54.33%
Values	Daily Returns

NATIONAL AUSTRALIA BK  vs.  NETGEAR

NATIONAL AUSTRALIA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days NATIONAL AUSTRALIA BK has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, NATIONAL is not utilizing all of its potentials. The current stock price disturbance, 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 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 NATIONAL and NETGEAR

The main advantage of trading using opposite NATIONAL and NETGEAR positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if NATIONAL 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 NATIONAL AUSTRALIA BK 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 Portfolio Dashboard module to portfolio dashboard that provides centralized access to all your investments.