Correlation Between New Residential and Addus HomeCare

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

Diversification Opportunities for New Residential and Addus HomeCare

0.14

Correlation Coefficient

New Residential  Addus HomeCare

Average diversification

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

Pair Corralation between New Residential and Addus HomeCare

Assuming the 90 days trading horizon New Residential is expected to generate 1.29 times less return on investment than Addus HomeCare. But when comparing it to its historical volatility, New Residential Investment is 1.22 times less risky than Addus HomeCare. It trades about 0.21 of its potential returns per unit of risk. Addus HomeCare is currently generating about 0.22 of returns per unit of risk over similar time horizon. If you would invest  11,200  in Addus HomeCare on October 10, 2024 and sell it today you would earn a total of  700.00  from holding Addus HomeCare or generate 6.25% return on investment over 90 days.

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

New Residential Investment  vs.  Addus HomeCare

New Residential Inve

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in New Residential Investment are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, New Residential reported solid returns over the last few months and may actually be approaching a breakup point.

Addus HomeCare

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Addus HomeCare are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Addus HomeCare is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with New Residential and Addus HomeCare

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

The idea behind New Residential Investment and Addus HomeCare 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.