Correlation Between New Residential and DIVERSIFIED ROYALTY

Can any of the company-specific risk be diversified away by investing in both New Residential and DIVERSIFIED ROYALTY 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 DIVERSIFIED ROYALTY 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 DIVERSIFIED ROYALTY, you can compare the effects of market volatilities on New Residential and DIVERSIFIED ROYALTY 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 DIVERSIFIED ROYALTY. Check out your portfolio center. Please also check ongoing floating volatility patterns of New Residential and DIVERSIFIED ROYALTY.

Diversification Opportunities for New Residential and DIVERSIFIED ROYALTY

-0.22

Correlation Coefficient

New Residential  DIVERSIFIED ROYALTY

Very good diversification

The 3 months correlation between New and DIVERSIFIED is -0.22. Overlapping area represents the amount of risk that can be diversified away by holding New Residential Investment and DIVERSIFIED ROYALTY in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on DIVERSIFIED ROYALTY 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 DIVERSIFIED ROYALTY. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of DIVERSIFIED ROYALTY has no effect on the direction of New Residential i.e., New Residential and DIVERSIFIED ROYALTY go up and down completely randomly.

Pair Corralation between New Residential and DIVERSIFIED ROYALTY

Assuming the 90 days trading horizon New Residential is expected to generate 3.13 times less return on investment than DIVERSIFIED ROYALTY. But when comparing it to its historical volatility, New Residential Investment is 2.51 times less risky than DIVERSIFIED ROYALTY. It trades about 0.04 of its potential returns per unit of risk. DIVERSIFIED ROYALTY is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  185.00  in DIVERSIFIED ROYALTY on September 3, 2024 and sell it today you would earn a total of  12.00  from holding DIVERSIFIED ROYALTY or generate 6.49% return on investment over 90 days.

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

New Residential Investment  vs.  DIVERSIFIED ROYALTY

New Residential Inve

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in New Residential Investment are ranked lower than 3 (%) 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.

DIVERSIFIED ROYALTY

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in DIVERSIFIED ROYALTY are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, DIVERSIFIED ROYALTY may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with New Residential and DIVERSIFIED ROYALTY

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

The idea behind New Residential Investment and DIVERSIFIED ROYALTY 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.

Check out your portfolio center.

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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.