Correlation Between EuropaCorp and Newtek Business

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

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

Diversification Opportunities for EuropaCorp and Newtek Business

-0.8

Correlation Coefficient

EuropaCorp  Newtek Business

Pay attention - limited upside

The 3 months correlation between EuropaCorp and Newtek is -0.8. Overlapping area represents the amount of risk that can be diversified away by holding EuropaCorp and Newtek Business Services in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Newtek Business Services and EuropaCorp 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 EuropaCorp are associated (or correlated) with Newtek Business. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Newtek Business Services has no effect on the direction of EuropaCorp i.e., EuropaCorp and Newtek Business go up and down completely randomly.

Pair Corralation between EuropaCorp and Newtek Business

Assuming the 90 days horizon EuropaCorp is expected to generate 2.74 times more return on investment than Newtek Business. However, EuropaCorp is 2.74 times more volatile than Newtek Business Services. It trades about -0.02 of its potential returns per unit of risk. Newtek Business Services is currently generating about -0.45 per unit of risk. If you would invest  34.00  in EuropaCorp on September 27, 2024 and sell it today you would lose (1.00) from holding EuropaCorp or give up 2.94% of portfolio value over 90 days.

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

EuropaCorp  vs.  Newtek Business Services

EuropaCorp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days EuropaCorp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Newtek Business Services

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Newtek Business Services are ranked lower than 7 (%) 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.

Pair Trading with EuropaCorp and Newtek Business

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

The idea behind EuropaCorp and Newtek Business Services 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.