Correlation Between Royalty Management and Newpark Resources

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

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

Diversification Opportunities for Royalty Management and Newpark Resources

-0.03

Correlation Coefficient

Royalty Management  Newpark Resources

Good diversification

The 3 months correlation between Royalty and Newpark is -0.03. Overlapping area represents the amount of risk that can be diversified away by holding Royalty Management Holding and Newpark Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Newpark Resources and Royalty Management 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 Royalty Management Holding are associated (or correlated) with Newpark Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Newpark Resources has no effect on the direction of Royalty Management i.e., Royalty Management and Newpark Resources go up and down completely randomly.

Pair Corralation between Royalty Management and Newpark Resources

Given the investment horizon of 90 days Royalty Management Holding is expected to generate 1.86 times more return on investment than Newpark Resources. However, Royalty Management is 1.86 times more volatile than Newpark Resources. It trades about 0.08 of its potential returns per unit of risk. Newpark Resources is currently generating about 0.06 per unit of risk. If you would invest  93.00  in Royalty Management Holding on September 26, 2024 and sell it today you would earn a total of  16.00  from holding Royalty Management Holding or generate 17.2% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.24%
Values	Daily Returns

Royalty Management Holding  vs.  Newpark Resources

Royalty Management

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Royalty Management Holding are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of very fragile fundamental indicators, Royalty Management displayed solid returns over the last few months and may actually be approaching a breakup point.

Newpark Resources

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Newpark Resources are ranked lower than 4 (%) 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.

Pair Trading with Royalty Management and Newpark Resources

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

The idea behind Royalty Management Holding and Newpark Resources 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.