Correlation Between ACI Worldwide and NetScout Systems

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

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

Diversification Opportunities for ACI Worldwide and NetScout Systems

0.85

Correlation Coefficient

ACI Worldwide  NetScout Systems

Very poor diversification

The 3 months correlation between ACI and NetScout is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding ACI Worldwide and NetScout Systems in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NetScout Systems and ACI Worldwide 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 ACI Worldwide 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 ACI Worldwide i.e., ACI Worldwide and NetScout Systems go up and down completely randomly.

Pair Corralation between ACI Worldwide and NetScout Systems

Given the investment horizon of 90 days ACI Worldwide is expected to generate 0.72 times more return on investment than NetScout Systems. However, ACI Worldwide is 1.38 times less risky than NetScout Systems. It trades about 0.2 of its potential returns per unit of risk. NetScout Systems is currently generating about 0.05 per unit of risk. If you would invest  3,646  in ACI Worldwide on August 9, 2024 and sell it today you would earn a total of  1,796  from holding ACI Worldwide or generate 49.26% return on investment over 90 days.

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

ACI Worldwide  vs.  NetScout Systems

ACI Worldwide

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in ACI Worldwide are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unfluctuating forward indicators, ACI Worldwide showed solid returns over the last few months and may actually be approaching a breakup point.

NetScout Systems

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in NetScout Systems are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain fundamental indicators, NetScout Systems unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with ACI Worldwide and NetScout Systems

The main advantage of trading using opposite ACI Worldwide and NetScout Systems positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if ACI Worldwide 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 ACI Worldwide 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.