Correlation Between New World and SFL
Can any of the company-specific risk be diversified away by investing in both New World and SFL 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 World and SFL into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between New World Development and SFL Corporation, you can compare the effects of market volatilities on New World and SFL 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 World with a short position of SFL. Check out your portfolio center. Please also check ongoing floating volatility patterns of New World and SFL.
Diversification Opportunities for New World and SFL
Average diversification
The 3 months correlation between New and SFL is 0.12. Overlapping area represents the amount of risk that can be diversified away by holding New World Development and SFL Corp. in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SFL Corporation and New World 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 World Development are associated (or correlated) with SFL. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SFL Corporation has no effect on the direction of New World i.e., New World and SFL go up and down completely randomly.
Pair Corralation between New World and SFL
Assuming the 90 days horizon New World Development is expected to generate 0.49 times more return on investment than SFL. However, New World Development is 2.03 times less risky than SFL. It trades about -0.12 of its potential returns per unit of risk. SFL Corporation is currently generating about -0.07 per unit of risk. If you would invest 97.00 in New World Development on September 3, 2024 and sell it today you would lose (5.00) from holding New World Development or give up 5.15% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
New World Development vs. SFL Corp.
Performance |
| Timeline |
| New World Development |
| SFL Corporation |
New World and SFL Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with New World and SFL
The main advantage of trading using opposite New World and SFL positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if New World position performs unexpectedly, SFL 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 SFL will offset losses from the drop in SFL's long position.| New World vs. SFL Corporation | New World vs. Supercom | New World vs. Analog Devices | New World vs. Allient |
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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.
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