Correlation Between Alarm Holdings and NetScout Systems

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

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

Diversification Opportunities for Alarm Holdings and NetScout Systems

-0.79

Correlation Coefficient

Alarm Holdings  NetScout Systems

Pay attention - limited upside

The 3 months correlation between Alarm and NetScout is -0.79. Overlapping area represents the amount of risk that can be diversified away by holding Alarm Holdings and NetScout Systems in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NetScout Systems 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 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 Alarm Holdings i.e., Alarm Holdings and NetScout Systems go up and down completely randomly.

Pair Corralation between Alarm Holdings and NetScout Systems

Given the investment horizon of 90 days Alarm Holdings is expected to under-perform the NetScout Systems. But the stock apears to be less risky and, when comparing its historical volatility, Alarm Holdings is 1.33 times less risky than NetScout Systems. The stock trades about -0.02 of its potential returns per unit of risk. The NetScout Systems is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  2,617  in NetScout Systems on August 16, 2025 and sell it today you would earn a total of  83.00  from holding NetScout Systems or generate 3.17% return on investment over 90 days.

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

Alarm Holdings  vs.  NetScout Systems

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 conflicting 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.

NetScout Systems

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in NetScout Systems are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady fundamental indicators, NetScout Systems unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Alarm Holdings and NetScout Systems

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