Correlation Between New Residential and SBM Offshore

Can any of the company-specific risk be diversified away by investing in both New Residential and SBM Offshore 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 SBM Offshore 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 SBM Offshore NV, you can compare the effects of market volatilities on New Residential and SBM Offshore 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 SBM Offshore. Check out your portfolio center. Please also check ongoing floating volatility patterns of New Residential and SBM Offshore.

Diversification Opportunities for New Residential and SBM Offshore

-0.14

Correlation Coefficient

New Residential  SBM Offshore

Good diversification

The 3 months correlation between New and SBM is -0.14. Overlapping area represents the amount of risk that can be diversified away by holding New Residential Investment and SBM Offshore NV in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SBM Offshore NV 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 SBM Offshore. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SBM Offshore NV has no effect on the direction of New Residential i.e., New Residential and SBM Offshore go up and down completely randomly.

Pair Corralation between New Residential and SBM Offshore

Assuming the 90 days trading horizon New Residential Investment is expected to under-perform the SBM Offshore. But the stock apears to be less risky and, when comparing its historical volatility, New Residential Investment is 1.38 times less risky than SBM Offshore. The stock trades about -0.09 of its potential returns per unit of risk. The SBM Offshore NV is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  1,640  in SBM Offshore NV on September 21, 2024 and sell it today you would earn a total of  6.00  from holding SBM Offshore NV or generate 0.37% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.44%
Values	Daily Returns

New Residential Investment  vs.  SBM Offshore NV

New Residential Inve

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days New Residential Investment has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, New Residential is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

SBM Offshore NV

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days SBM Offshore NV has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent essential indicators, SBM Offshore is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with New Residential and SBM Offshore

The main advantage of trading using opposite New Residential and SBM Offshore positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if New Residential position performs unexpectedly, SBM Offshore 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 SBM Offshore will offset losses from the drop in SBM Offshore's long position.

The idea behind New Residential Investment and SBM Offshore NV 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.