Correlation Between Newpark Resources and Magna International

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

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

Diversification Opportunities for Newpark Resources and Magna International

0.67

Correlation Coefficient

Newpark Resources  Magna International

Poor diversification

The 3 months correlation between Newpark and Magna is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Newpark Resources and Magna International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Magna International 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 Magna International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Magna International has no effect on the direction of Newpark Resources i.e., Newpark Resources and Magna International go up and down completely randomly.

Pair Corralation between Newpark Resources and Magna International

Allowing for the 90-day total investment horizon Newpark Resources is expected to under-perform the Magna International. In addition to that, Newpark Resources is 1.35 times more volatile than Magna International. It trades about -0.02 of its total potential returns per unit of risk. Magna International is currently generating about 0.03 per unit of volatility. If you would invest  4,062  in Magna International on September 27, 2024 and sell it today you would earn a total of  180.00  from holding Magna International or generate 4.43% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	96.8%
Values	Daily Returns

Newpark Resources  vs.  Magna International

Newpark Resources

Risk-Adjusted Performance

3 of 100

Insignificant

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

Magna International

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Magna International has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong technical and fundamental indicators, Magna International is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Newpark Resources and Magna International

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

The idea behind Newpark Resources and Magna International 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 Funds Screener module to find actively-traded funds from around the world traded on over 30 global exchanges.