Correlation Between New Residential and Canon

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

Diversification Opportunities for New Residential and Canon

0.55

Correlation Coefficient

New Residential  Canon

Very weak diversification

The 3 months correlation between New and Canon is 0.55. Overlapping area represents the amount of risk that can be diversified away by holding New Residential Investment and Canon Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Canon Inc 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 Canon. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Canon Inc has no effect on the direction of New Residential i.e., New Residential and Canon go up and down completely randomly.

Pair Corralation between New Residential and Canon

Assuming the 90 days trading horizon New Residential Investment is expected to under-perform the Canon. But the stock apears to be less risky and, when comparing its historical volatility, New Residential Investment is 1.84 times less risky than Canon. The stock trades about -0.08 of its potential returns per unit of risk. The Canon Inc is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  3,154  in Canon Inc on September 26, 2024 and sell it today you would lose (13.00) from holding Canon Inc or give up 0.41% of portfolio value over 90 days.

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

New Residential Investment  vs.  Canon Inc

New Residential Inve

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in New Residential Investment are ranked lower than 8 (%) 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 January 2025.

Canon Inc

Risk-Adjusted Performance

3 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Canon Inc are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Canon is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with New Residential and Canon

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

The idea behind New Residential Investment and Canon Inc 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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.