Correlation Between NLIGHT and NETGEAR

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

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

Diversification Opportunities for NLIGHT and NETGEAR

-0.03

Correlation Coefficient

NLIGHT  NETGEAR

Good diversification

The 3 months correlation between NLIGHT and NETGEAR is -0.03. Overlapping area represents the amount of risk that can be diversified away by holding nLIGHT Inc and NETGEAR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NETGEAR and NLIGHT 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 nLIGHT Inc 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 NLIGHT i.e., NLIGHT and NETGEAR go up and down completely randomly.

Pair Corralation between NLIGHT and NETGEAR

Given the investment horizon of 90 days nLIGHT Inc is expected to under-perform the NETGEAR. In addition to that, NLIGHT is 1.03 times more volatile than NETGEAR. It trades about -0.23 of its total potential returns per unit of risk. NETGEAR is currently generating about -0.13 per unit of volatility. If you would invest  1,570  in NETGEAR on January 29, 2024 and sell it today you would lose (85.00) from holding NETGEAR or give up 5.41% of portfolio value over 90 days.

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

nLIGHT Inc  vs.  NETGEAR

nLIGHT Inc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days nLIGHT Inc has generated negative risk-adjusted returns adding no value to investors with long positions. Even with latest weak performance, the Stock's basic indicators remain invariable and the latest agitation on Wall Street may also be a sign of long-running gains for the enterprise retail investors.

NETGEAR

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in NETGEAR are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable technical and fundamental indicators, NETGEAR is not utilizing all of its potentials. The recent stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with NLIGHT and NETGEAR

The main advantage of trading using opposite NLIGHT and NETGEAR positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if NLIGHT 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 nLIGHT Inc 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.