Correlation Between Newtek Business and ScanSource

Can any of the company-specific risk be diversified away by investing in both Newtek Business and ScanSource 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 Newtek Business and ScanSource into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Newtek Business Services and ScanSource, you can compare the effects of market volatilities on Newtek Business and ScanSource 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 Newtek Business with a short position of ScanSource. Check out your portfolio center. Please also check ongoing floating volatility patterns of Newtek Business and ScanSource.

Diversification Opportunities for Newtek Business and ScanSource

0.75

Correlation Coefficient

Newtek Business  ScanSource

Poor diversification

The 3 months correlation between Newtek and ScanSource is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Newtek Business Services and ScanSource in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ScanSource and Newtek Business 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 Newtek Business Services are associated (or correlated) with ScanSource. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ScanSource has no effect on the direction of Newtek Business i.e., Newtek Business and ScanSource go up and down completely randomly.

Pair Corralation between Newtek Business and ScanSource

Assuming the 90 days trading horizon Newtek Business is expected to generate 5.08 times less return on investment than ScanSource. In addition to that, Newtek Business is 1.32 times more volatile than ScanSource. It trades about 0.01 of its total potential returns per unit of risk. ScanSource is currently generating about 0.06 per unit of volatility. If you would invest  2,820  in ScanSource on September 28, 2024 and sell it today you would earn a total of  1,740  from holding ScanSource or generate 61.7% return on investment over 90 days.

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

Newtek Business Services  vs.  ScanSource

Newtek Business Services

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Newtek Business Services are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Newtek Business reported solid returns over the last few months and may actually be approaching a breakup point.

ScanSource

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in ScanSource are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, ScanSource may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Newtek Business and ScanSource

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

The idea behind Newtek Business Services and ScanSource 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.

Check out your portfolio center.

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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.