Correlation Between NetApp and NEXTDC

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

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

Diversification Opportunities for NetApp and NEXTDC

0.81

Correlation Coefficient

NetApp  NEXTDC

Very poor diversification

The 3 months correlation between NetApp and NEXTDC is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding NetApp Inc and NEXTDC LTD in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NEXTDC LTD and NetApp 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 NetApp Inc are associated (or correlated) with NEXTDC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NEXTDC LTD has no effect on the direction of NetApp i.e., NetApp and NEXTDC go up and down completely randomly.

Pair Corralation between NetApp and NEXTDC

Assuming the 90 days horizon NetApp is expected to generate 1.76 times less return on investment than NEXTDC. But when comparing it to its historical volatility, NetApp Inc is 1.44 times less risky than NEXTDC. It trades about 0.11 of its potential returns per unit of risk. NEXTDC LTD is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  610.00  in NEXTDC LTD on April 25, 2025 and sell it today you would earn a total of  160.00  from holding NEXTDC LTD or generate 26.23% return on investment over 90 days.

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

NetApp Inc  vs.  NEXTDC LTD

NetApp Inc

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in NetApp Inc are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, NetApp reported solid returns over the last few months and may actually be approaching a breakup point.

NEXTDC LTD

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in NEXTDC LTD are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, NEXTDC reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with NetApp and NEXTDC

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

The idea behind NetApp Inc and NEXTDC LTD 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.