Correlation Between New Residential and British American
Can any of the company-specific risk be diversified away by investing in both New Residential and British American 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 British American 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 British American Tobacco, you can compare the effects of market volatilities on New Residential and British American 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 British American. Check out your portfolio center. Please also check ongoing floating volatility patterns of New Residential and British American.
Diversification Opportunities for New Residential and British American
0.68 | Correlation Coefficient |
Poor diversification
The 3 months correlation between New and British is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding New Residential Investment and British American Tobacco in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on British American Tobacco 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 British American. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of British American Tobacco has no effect on the direction of New Residential i.e., New Residential and British American go up and down completely randomly.
Pair Corralation between New Residential and British American
Assuming the 90 days trading horizon New Residential Investment is expected to generate 0.54 times more return on investment than British American. However, New Residential Investment is 1.85 times less risky than British American. It trades about -0.14 of its potential returns per unit of risk. British American Tobacco is currently generating about -0.11 per unit of risk. If you would invest 1,136 in New Residential Investment on December 8, 2024 and sell it today you would lose (45.00) from holding New Residential Investment or give up 3.96% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
New Residential Investment vs. British American Tobacco
Performance |
| Timeline |
| New Residential Inve |
| British American Tobacco |
New Residential and British American Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with New Residential and British American
The main advantage of trading using opposite New Residential and British American positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if New Residential position performs unexpectedly, British American 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 British American will offset losses from the drop in British American's long position.| New Residential vs. ALERION CLEANPOWER | ||
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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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.
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