Correlation Between New England and FirstService Corp

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

By analyzing existing cross correlation between New England Realty and FirstService Corp, you can compare the effects of market volatilities on New England and FirstService Corp 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 England with a short position of FirstService Corp. Check out your portfolio center. Please also check ongoing floating volatility patterns of New England and FirstService Corp.

Diversification Opportunities for New England and FirstService Corp

0.08

Correlation Coefficient

New England  FirstService Corp

Significant diversification

The 3 months correlation between New and FirstService is 0.08. Overlapping area represents the amount of risk that can be diversified away by holding New England Realty and FirstService Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FirstService Corp and New England 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 England Realty are associated (or correlated) with FirstService Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of FirstService Corp has no effect on the direction of New England i.e., New England and FirstService Corp go up and down completely randomly.

Pair Corralation between New England and FirstService Corp

Considering the 90-day investment horizon New England Realty is expected to generate 1.62 times more return on investment than FirstService Corp. However, New England is 1.62 times more volatile than FirstService Corp. It trades about -0.02 of its potential returns per unit of risk. FirstService Corp is currently generating about -0.08 per unit of risk. If you would invest  7,955  in New England Realty on December 29, 2024 and sell it today you would lose (250.00) from holding New England Realty or give up 3.14% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	68.85%
Values	Daily Returns

New England Realty  vs.  FirstService Corp

New England Realty

Risk-Adjusted Performance

Very Weak

Over the last 90 days New England Realty has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy technical and fundamental indicators, New England is not utilizing all of its potentials. The newest stock price disarray, may contribute to short-term losses for the investors.

FirstService Corp

Risk-Adjusted Performance

Very Weak

Over the last 90 days FirstService Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest conflicting performance, the Stock's basic indicators remain stable and the latest fuss on Wall Street may also be a sign of long-term gains for the venture sophisticated investors.

Pair Trading with New England and FirstService Corp

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

The idea behind New England Realty and FirstService Corp 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.