Correlation Between New Residential and Li-FT Power

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

Diversification Opportunities for New Residential and Li-FT Power

0.05

Correlation Coefficient

New Residential  Li-FT Power

Significant diversification

The 3 months correlation between New and Li-FT is 0.05. Overlapping area represents the amount of risk that can be diversified away by holding New Residential Investment and Li FT Power in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Li FT Power 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 Li-FT Power. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Li FT Power has no effect on the direction of New Residential i.e., New Residential and Li-FT Power go up and down completely randomly.

Pair Corralation between New Residential and Li-FT Power

Assuming the 90 days trading horizon New Residential Investment is expected to generate 0.21 times more return on investment than Li-FT Power. However, New Residential Investment is 4.84 times less risky than Li-FT Power. It trades about 0.09 of its potential returns per unit of risk. Li FT Power is currently generating about -0.02 per unit of risk. If you would invest  1,005  in New Residential Investment on December 19, 2024 and sell it today you would earn a total of  69.00  from holding New Residential Investment or generate 6.87% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.33%
Values	Daily Returns

New Residential Investment  vs.  Li FT Power

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 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, New Residential may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Li FT Power

Risk-Adjusted Performance

Very Weak

Over the last 90 days Li FT Power has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Li-FT Power 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 Li-FT Power

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

The idea behind New Residential Investment and Li FT Power 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.