Correlation Between NewMarket and REX American
Can any of the company-specific risk be diversified away by investing in both NewMarket and REX 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 NewMarket and REX American into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between NewMarket and REX American Resources, you can compare the effects of market volatilities on NewMarket and REX 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 NewMarket with a short position of REX American. Check out your portfolio center. Please also check ongoing floating volatility patterns of NewMarket and REX American.
Diversification Opportunities for NewMarket and REX American
0.07 | Correlation Coefficient |
Significant diversification
The 3 months correlation between NewMarket and REX is 0.07. Overlapping area represents the amount of risk that can be diversified away by holding NewMarket and REX American Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on REX American Resources and NewMarket 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 NewMarket are associated (or correlated) with REX American. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of REX American Resources has no effect on the direction of NewMarket i.e., NewMarket and REX American go up and down completely randomly.
Pair Corralation between NewMarket and REX American
Considering the 90-day investment horizon NewMarket is expected to generate 1.02 times less return on investment than REX American. But when comparing it to its historical volatility, NewMarket is 2.06 times less risky than REX American. It trades about 0.09 of its potential returns per unit of risk. REX American Resources is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest 2,860 in REX American Resources on August 28, 2024 and sell it today you would earn a total of 1,603 from holding REX American Resources or generate 56.05% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
NewMarket vs. REX American Resources
Performance |
| Timeline |
| NewMarket |
| REX American Resources |
NewMarket and REX American Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with NewMarket and REX American
The main advantage of trading using opposite NewMarket and REX American positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if NewMarket position performs unexpectedly, REX 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 REX American will offset losses from the drop in REX American's long position.The idea behind NewMarket and REX American 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.| REX American vs. Lsb Industries | REX American vs. AdvanSix | REX American vs. Tronox Holdings PLC | REX American vs. Methanex |
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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