Correlation Between Lenovo Group and NetApp

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

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

Diversification Opportunities for Lenovo Group and NetApp

0.19

Correlation Coefficient

Lenovo Group  NetApp

Average diversification

The 3 months correlation between Lenovo and NetApp is 0.19. Overlapping area represents the amount of risk that can be diversified away by holding Lenovo Group Ltd and NetApp Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NetApp Inc and Lenovo Group 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 Lenovo Group Ltd are associated (or correlated) with NetApp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NetApp Inc has no effect on the direction of Lenovo Group i.e., Lenovo Group and NetApp go up and down completely randomly.

Pair Corralation between Lenovo Group and NetApp

Assuming the 90 days horizon Lenovo Group is expected to generate 12.2 times less return on investment than NetApp. But when comparing it to its historical volatility, Lenovo Group Ltd is 1.26 times less risky than NetApp. It trades about 0.02 of its potential returns per unit of risk. NetApp Inc is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  8,506  in NetApp Inc on January 19, 2024 and sell it today you would earn a total of  1,585  from holding NetApp Inc or generate 18.63% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	97.62%
Values	Daily Returns

Lenovo Group Ltd  vs.  NetApp Inc

Lenovo Group

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Lenovo Group Ltd has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of inconsistent performance in the last few months, the Stock's technical and fundamental indicators remain fairly strong which may send shares a bit higher in May 2024. The current disturbance may also be a sign of long term up-swing for the company investors.

NetApp Inc

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in NetApp Inc are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Even with relatively uncertain basic indicators, NetApp reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Lenovo Group and NetApp

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

The idea behind Lenovo Group Ltd and NetApp Inc 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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.