Correlation Between Aeorema Communications and New Residential

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

By analyzing existing cross correlation between Aeorema Communications Plc and New Residential Investment, you can compare the effects of market volatilities on Aeorema Communications and New Residential 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 Aeorema Communications with a short position of New Residential. Check out your portfolio center. Please also check ongoing floating volatility patterns of Aeorema Communications and New Residential.

Diversification Opportunities for Aeorema Communications and New Residential

0.73

Correlation Coefficient

Aeorema Communications  New Residential

Poor diversification

The 3 months correlation between Aeorema and New is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Aeorema Communications Plc and New Residential Investment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on New Residential Inve and Aeorema Communications 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 Aeorema Communications Plc are associated (or correlated) with New Residential. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of New Residential Inve has no effect on the direction of Aeorema Communications i.e., Aeorema Communications and New Residential go up and down completely randomly.

Pair Corralation between Aeorema Communications and New Residential

Assuming the 90 days trading horizon Aeorema Communications Plc is expected to generate 1.23 times more return on investment than New Residential. However, Aeorema Communications is 1.23 times more volatile than New Residential Investment. It trades about 0.03 of its potential returns per unit of risk. New Residential Investment is currently generating about -0.05 per unit of risk. If you would invest  5,750  in Aeorema Communications Plc on September 14, 2024 and sell it today you would earn a total of  100.00  from holding Aeorema Communications Plc or generate 1.74% return on investment over 90 days.

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

Aeorema Communications Plc  vs.  New Residential Investment

Aeorema Communications

Risk-Adjusted Performance

2 of 100

Very Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Aeorema Communications Plc are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound technical and fundamental indicators, Aeorema Communications is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

New Residential Inve

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Aeorema Communications and New Residential

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

The idea behind Aeorema Communications Plc and New Residential Investment 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.