Correlation Between New Residential and Air Transport

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Can any of the company-specific risk be diversified away by investing in both New Residential and Air Transport 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 New Residential and Air Transport into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between New Residential Investment and Air Transport Services, you can compare the effects of market volatilities on New Residential and Air Transport 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 New Residential with a short position of Air Transport. Check out your portfolio center. Please also check ongoing floating volatility patterns of New Residential and Air Transport.

Diversification Opportunities for New Residential and Air Transport

0.48
  Correlation Coefficient

Very weak diversification

The 3 months correlation between New and Air is 0.48. Overlapping area represents the amount of risk that can be diversified away by holding New Residential Investment and Air Transport Services in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Air Transport Services and New Residential 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 New Residential Investment are associated (or correlated) with Air Transport. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Air Transport Services has no effect on the direction of New Residential i.e., New Residential and Air Transport go up and down completely randomly.

Pair Corralation between New Residential and Air Transport

Assuming the 90 days trading horizon New Residential Investment is expected to generate 1.71 times more return on investment than Air Transport. However, New Residential is 1.71 times more volatile than Air Transport Services. It trades about 0.2 of its potential returns per unit of risk. Air Transport Services is currently generating about 0.08 per unit of risk. If you would invest  1,013  in New Residential Investment on September 12, 2024 and sell it today you would earn a total of  42.00  from holding New Residential Investment or generate 4.15% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthWeak
Accuracy100.0%
ValuesDaily Returns

New Residential Investment  vs.  Air Transport Services

 Performance 
       Timeline  
New Residential Inve 

Risk-Adjusted Performance

4 of 100

 
Weak
 
Strong
Insignificant
Compared to the overall equity markets, risk-adjusted returns on investments in New Residential Investment are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, New Residential is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.
Air Transport Services 

Risk-Adjusted Performance

16 of 100

 
Weak
 
Strong
Solid
Compared to the overall equity markets, risk-adjusted returns on investments in Air Transport Services are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Air Transport reported solid returns over the last few months and may actually be approaching a breakup point.

New Residential and Air Transport Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with New Residential and Air Transport

The main advantage of trading using opposite New Residential and Air Transport positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if New Residential position performs unexpectedly, Air Transport 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 Air Transport will offset losses from the drop in Air Transport's long position.
The idea behind New Residential Investment and Air Transport 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.
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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.

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