Correlation Between Boston Beer and Newpark Resources

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

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

Diversification Opportunities for Boston Beer and Newpark Resources

0.51

Correlation Coefficient

Boston Beer  Newpark Resources

Very weak diversification

The 3 months correlation between Boston and Newpark is 0.51. Overlapping area represents the amount of risk that can be diversified away by holding Boston Beer and Newpark Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Newpark Resources and Boston Beer 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 Boston Beer 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 Boston Beer i.e., Boston Beer and Newpark Resources go up and down completely randomly.

Pair Corralation between Boston Beer and Newpark Resources

Considering the 90-day investment horizon Boston Beer is expected to generate 0.65 times more return on investment than Newpark Resources. However, Boston Beer is 1.53 times less risky than Newpark Resources. It trades about 0.13 of its potential returns per unit of risk. Newpark Resources is currently generating about 0.02 per unit of risk. If you would invest  26,960  in Boston Beer on September 20, 2024 and sell it today you would earn a total of  3,339  from holding Boston Beer or generate 12.39% return on investment over 90 days.

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

Boston Beer  vs.  Newpark Resources

Boston Beer

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Boston Beer are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of very unsteady basic indicators, Boston Beer may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Newpark Resources

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Newpark Resources are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable basic indicators, Newpark Resources is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Boston Beer and Newpark Resources

The main advantage of trading using opposite Boston Beer and Newpark Resources positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Boston Beer 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 Boston Beer 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.

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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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.