Correlation Between Newpark Resources and Griffon

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

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

Diversification Opportunities for Newpark Resources and Griffon

0.83

Correlation Coefficient

Newpark Resources  Griffon

Very poor diversification

The 3 months correlation between Newpark and Griffon is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Newpark Resources and Griffon in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Griffon and Newpark Resources 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 Newpark Resources are associated (or correlated) with Griffon. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Griffon has no effect on the direction of Newpark Resources i.e., Newpark Resources and Griffon go up and down completely randomly.

Pair Corralation between Newpark Resources and Griffon

Allowing for the 90-day total investment horizon Newpark Resources is expected to generate 2.0 times less return on investment than Griffon. But when comparing it to its historical volatility, Newpark Resources is 1.96 times less risky than Griffon. It trades about 0.19 of its potential returns per unit of risk. Griffon is currently generating about 0.19 of returns per unit of risk over similar time horizon. If you would invest  6,797  in Griffon on September 13, 2024 and sell it today you would earn a total of  1,210  from holding Griffon or generate 17.8% return on investment over 90 days.

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

Newpark Resources  vs.  Griffon

Newpark Resources

Risk-Adjusted Performance

7 of 100

OK

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

Griffon

Risk-Adjusted Performance

8 of 100

OK

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

Pair Trading with Newpark Resources and Griffon

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

The idea behind Newpark Resources and Griffon 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.