Correlation Between NETGEAR and Alarm Holdings

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

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

Diversification Opportunities for NETGEAR and Alarm Holdings

0.58

Correlation Coefficient

NETGEAR  Alarm Holdings

Very weak diversification

The 3 months correlation between NETGEAR and Alarm is 0.58. Overlapping area represents the amount of risk that can be diversified away by holding NETGEAR and Alarm Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alarm Holdings and NETGEAR 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 NETGEAR are associated (or correlated) with Alarm Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Alarm Holdings has no effect on the direction of NETGEAR i.e., NETGEAR and Alarm Holdings go up and down completely randomly.

Pair Corralation between NETGEAR and Alarm Holdings

Given the investment horizon of 90 days NETGEAR is expected to under-perform the Alarm Holdings. In addition to that, NETGEAR is 1.77 times more volatile than Alarm Holdings. It trades about -0.09 of its total potential returns per unit of risk. Alarm Holdings is currently generating about -0.11 per unit of volatility. If you would invest  5,997  in Alarm Holdings on May 10, 2025 and sell it today you would lose (563.00) from holding Alarm Holdings or give up 9.39% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.39%
Values	Daily Returns

NETGEAR  vs.  Alarm Holdings

NETGEAR

Risk-Adjusted Performance

Weakest

Over the last 90 days NETGEAR has generated negative risk-adjusted returns adding no value to investors with long positions. Even with uncertain performance in the last few months, the Stock's technical and fundamental indicators remain relatively invariable which may send shares a bit higher in September 2025. The latest agitation may also be a sign of long-running up-swing for the enterprise retail investors.

Alarm Holdings

Risk-Adjusted Performance

Weakest

Over the last 90 days Alarm Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's basic indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Pair Trading with NETGEAR and Alarm Holdings

The main advantage of trading using opposite NETGEAR and Alarm Holdings positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if NETGEAR position performs unexpectedly, Alarm Holdings 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 Alarm Holdings will offset losses from the drop in Alarm Holdings' long position.

The idea behind NETGEAR and Alarm Holdings 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.