Correlation Between Alarm Holdings and NETGEAR

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

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

Diversification Opportunities for Alarm Holdings and NETGEAR

0.85

Correlation Coefficient

Alarm Holdings  NETGEAR

Very poor diversification

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

Pair Corralation between Alarm Holdings and NETGEAR

Given the investment horizon of 90 days Alarm Holdings is expected to generate 2.29 times less return on investment than NETGEAR. But when comparing it to its historical volatility, Alarm Holdings is 1.89 times less risky than NETGEAR. It trades about 0.12 of its potential returns per unit of risk. NETGEAR is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  2,161  in NETGEAR on April 20, 2025 and sell it today you would earn a total of  618.00  from holding NETGEAR or generate 28.6% return on investment over 90 days.

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

Alarm Holdings  vs.  NETGEAR

Alarm Holdings

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Alarm Holdings are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of very uncertain basic indicators, Alarm Holdings may actually be approaching a critical reversion point that can send shares even higher in August 2025.

NETGEAR

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in NETGEAR are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Even with relatively unfluctuating technical and fundamental indicators, NETGEAR reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Alarm Holdings and NETGEAR

The main advantage of trading using opposite Alarm Holdings and NETGEAR positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Alarm Holdings 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 Alarm Holdings 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 Transaction History module to view history of all your transactions and understand their impact on performance.