Correlation Between Newpark Resources and Emerson Electric

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

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

Diversification Opportunities for Newpark Resources and Emerson Electric

0.74

Correlation Coefficient

Newpark Resources  Emerson Electric

Poor diversification

The 3 months correlation between Newpark and Emerson is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Newpark Resources and Emerson Electric in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Emerson Electric and Newpark Resources 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 Newpark Resources are associated (or correlated) with Emerson Electric. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Emerson Electric has no effect on the direction of Newpark Resources i.e., Newpark Resources and Emerson Electric go up and down completely randomly.

Pair Corralation between Newpark Resources and Emerson Electric

Allowing for the 90-day total investment horizon Newpark Resources is expected to generate 4.73 times less return on investment than Emerson Electric. In addition to that, Newpark Resources is 1.4 times more volatile than Emerson Electric. It trades about 0.03 of its total potential returns per unit of risk. Emerson Electric is currently generating about 0.21 per unit of volatility. If you would invest  10,348  in Emerson Electric on September 17, 2024 and sell it today you would earn a total of  2,673  from holding Emerson Electric or generate 25.83% return on investment over 90 days.

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

Newpark Resources  vs.  Emerson Electric

Newpark Resources

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Newpark Resources are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable basic indicators, Newpark Resources is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

Emerson Electric

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Emerson Electric are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak primary indicators, Emerson Electric reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Newpark Resources and Emerson Electric

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

The idea behind Newpark Resources and Emerson Electric 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 Portfolio File Import module to quickly import all of your third-party portfolios from your local drive in csv format.