Correlation Between New Residential and First Solar

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

Diversification Opportunities for New Residential and First Solar

-0.26

Correlation Coefficient

New Residential  First Solar

Very good diversification

The 3 months correlation between New and First is -0.26. Overlapping area represents the amount of risk that can be diversified away by holding New Residential Investment and First Solar in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Solar 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 First Solar. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Solar has no effect on the direction of New Residential i.e., New Residential and First Solar go up and down completely randomly.

Pair Corralation between New Residential and First Solar

Assuming the 90 days trading horizon New Residential is expected to generate 1.29 times less return on investment than First Solar. But when comparing it to its historical volatility, New Residential Investment is 3.17 times less risky than First Solar. It trades about 0.08 of its potential returns per unit of risk. First Solar is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  16,990  in First Solar on October 12, 2024 and sell it today you would earn a total of  1,596  from holding First Solar or generate 9.39% return on investment over 90 days.

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

New Residential Investment  vs.  First Solar

New Residential Inve

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in New Residential Investment are ranked lower than 12 (%) 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 February 2025.

First Solar

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with New Residential and First Solar

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

The idea behind New Residential Investment and First Solar 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.