Correlation Between New Residential and NVR

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

Diversification Opportunities for New Residential and NVR

-0.58

Correlation Coefficient

New Residential  NVR

Excellent diversification

The 3 months correlation between New and NVR is -0.58. Overlapping area represents the amount of risk that can be diversified away by holding New Residential Investment and NVR Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NVR 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 NVR. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NVR Inc has no effect on the direction of New Residential i.e., New Residential and NVR go up and down completely randomly.

Pair Corralation between New Residential and NVR

Assuming the 90 days trading horizon New Residential is expected to generate 1.23 times less return on investment than NVR. But when comparing it to its historical volatility, New Residential Investment is 1.19 times less risky than NVR. It trades about 0.08 of its potential returns per unit of risk. NVR Inc is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  460,000  in NVR Inc on October 22, 2024 and sell it today you would earn a total of  345,000  from holding NVR Inc or generate 75.0% return on investment over 90 days.

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

New Residential Investment  vs.  NVR Inc

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 uncertain basic indicators, New Residential reported solid returns over the last few months and may actually be approaching a breakup point.

NVR Inc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days NVR Inc has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest uncertain performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with New Residential and NVR

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

The idea behind New Residential Investment and NVR 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.