Correlation Between New Residential and Caledonia Investments

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

Diversification Opportunities for New Residential and Caledonia Investments

0.72

Correlation Coefficient

New Residential  Caledonia Investments

Poor diversification

The 3 months correlation between New and Caledonia is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding New Residential Investment and Caledonia Investments in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Caledonia Investments 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 Caledonia Investments. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Caledonia Investments has no effect on the direction of New Residential i.e., New Residential and Caledonia Investments go up and down completely randomly.

Pair Corralation between New Residential and Caledonia Investments

Assuming the 90 days trading horizon New Residential is expected to generate 1.01 times less return on investment than Caledonia Investments. In addition to that, New Residential is 1.35 times more volatile than Caledonia Investments. It trades about 0.12 of its total potential returns per unit of risk. Caledonia Investments is currently generating about 0.17 per unit of volatility. If you would invest  332,481  in Caledonia Investments on October 25, 2024 and sell it today you would earn a total of  34,019  from holding Caledonia Investments or generate 10.23% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

New Residential Investment  vs.  Caledonia Investments

New Residential Inve

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in New Residential Investment are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady basic indicators, New Residential may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Caledonia Investments

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Caledonia Investments are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady basic indicators, Caledonia Investments may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with New Residential and Caledonia Investments

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

The idea behind New Residential Investment and Caledonia Investments 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.