Correlation Between New Residential and Sea

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

Diversification Opportunities for New Residential and Sea

0.74

Correlation Coefficient

New Residential  Sea

Poor diversification

The 3 months correlation between New and Sea is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding New Residential Investment and Sea Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sea Limited 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 Sea. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sea Limited has no effect on the direction of New Residential i.e., New Residential and Sea go up and down completely randomly.

Pair Corralation between New Residential and Sea

Assuming the 90 days trading horizon New Residential is expected to generate 1.58 times less return on investment than Sea. But when comparing it to its historical volatility, New Residential Investment is 2.04 times less risky than Sea. It trades about 0.09 of its potential returns per unit of risk. Sea Limited is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  10,740  in Sea Limited on December 19, 2024 and sell it today you would earn a total of  920.00  from holding Sea Limited or generate 8.57% 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.  Sea Limited

New Residential Inve

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in New Residential Investment are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, New Residential may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Sea Limited

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Sea Limited are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, Sea may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with New Residential and Sea

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

The idea behind New Residential Investment and Sea Limited 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..