Correlation Between New Residential and BOSTON BEER

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

By analyzing existing cross correlation between New Residential Investment and BOSTON BEER A , you can compare the effects of market volatilities on New Residential and BOSTON BEER 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 New Residential with a short position of BOSTON BEER. Check out your portfolio center. Please also check ongoing floating volatility patterns of New Residential and BOSTON BEER.

Diversification Opportunities for New Residential and BOSTON BEER

0.4

Correlation Coefficient

New Residential  BOSTON BEER

Very weak diversification

The 3 months correlation between New and BOSTON is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding New Residential Investment and BOSTON BEER A in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BOSTON BEER A and New Residential 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 New Residential Investment are associated (or correlated) with BOSTON BEER. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BOSTON BEER A has no effect on the direction of New Residential i.e., New Residential and BOSTON BEER go up and down completely randomly.

Pair Corralation between New Residential and BOSTON BEER

Assuming the 90 days trading horizon New Residential is expected to generate 5.31 times less return on investment than BOSTON BEER. But when comparing it to its historical volatility, New Residential Investment is 1.5 times less risky than BOSTON BEER. It trades about 0.06 of its potential returns per unit of risk. BOSTON BEER A is currently generating about 0.22 of returns per unit of risk over similar time horizon. If you would invest  24,160  in BOSTON BEER A on September 12, 2024 and sell it today you would earn a total of  6,000  from holding BOSTON BEER A or generate 24.83% return on investment over 90 days.

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

New Residential Investment  vs.  BOSTON BEER A

New Residential Inve

Risk-Adjusted Performance

4 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in New Residential Investment are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, New Residential is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

BOSTON BEER A

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in BOSTON BEER A are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain technical and fundamental indicators, BOSTON BEER exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with New Residential and BOSTON BEER

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

The idea behind New Residential Investment and BOSTON BEER A 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.