Correlation Between Newpark Resources and Primoris Services

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

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

Diversification Opportunities for Newpark Resources and Primoris Services

0.27

Correlation Coefficient

Newpark Resources  Primoris Services

Modest diversification

The 3 months correlation between Newpark and Primoris is 0.27. Overlapping area represents the amount of risk that can be diversified away by holding Newpark Resources and Primoris Services in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Primoris Services 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 Primoris Services. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Primoris Services has no effect on the direction of Newpark Resources i.e., Newpark Resources and Primoris Services go up and down completely randomly.

Pair Corralation between Newpark Resources and Primoris Services

Allowing for the 90-day total investment horizon Newpark Resources is expected to generate 6.97 times less return on investment than Primoris Services. But when comparing it to its historical volatility, Newpark Resources is 1.05 times less risky than Primoris Services. It trades about 0.05 of its potential returns per unit of risk. Primoris Services is currently generating about 0.32 of returns per unit of risk over similar time horizon. If you would invest  5,127  in Primoris Services on September 3, 2024 and sell it today you would earn a total of  3,244  from holding Primoris Services or generate 63.27% return on investment over 90 days.

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

Newpark Resources  vs.  Primoris Services

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.

Primoris Services

Risk-Adjusted Performance

24 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Primoris Services are ranked lower than 24 (%) of all global equities and portfolios over the last 90 days. In spite of very fragile forward indicators, Primoris Services displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Newpark Resources and Primoris Services

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

The idea behind Newpark Resources and Primoris Services 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.