Correlation Between Newpark Resources and Macmahon Holdings

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

By analyzing existing cross correlation between Newpark Resources and Macmahon Holdings Limited, you can compare the effects of market volatilities on Newpark Resources and Macmahon Holdings 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 Macmahon Holdings. Check out your portfolio center. Please also check ongoing floating volatility patterns of Newpark Resources and Macmahon Holdings.

Diversification Opportunities for Newpark Resources and Macmahon Holdings

-0.17

Correlation Coefficient

Newpark Resources  Macmahon Holdings

Good diversification

The 3 months correlation between Newpark and Macmahon is -0.17. Overlapping area represents the amount of risk that can be diversified away by holding Newpark Resources and Macmahon Holdings Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Macmahon Holdings 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 Macmahon Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Macmahon Holdings has no effect on the direction of Newpark Resources i.e., Newpark Resources and Macmahon Holdings go up and down completely randomly.

Pair Corralation between Newpark Resources and Macmahon Holdings

Allowing for the 90-day total investment horizon Newpark Resources is expected to generate 2.14 times less return on investment than Macmahon Holdings. But when comparing it to its historical volatility, Newpark Resources is 2.06 times less risky than Macmahon Holdings. It trades about 0.05 of its potential returns per unit of risk. Macmahon Holdings Limited is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  23.00  in Macmahon Holdings Limited on September 2, 2024 and sell it today you would earn a total of  2.00  from holding Macmahon Holdings Limited or generate 8.7% return on investment over 90 days.

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

Newpark Resources  vs.  Macmahon Holdings Limited

Newpark Resources

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Newpark Resources are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Even with relatively uncertain basic indicators, Newpark Resources may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Macmahon Holdings

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Macmahon Holdings Limited are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak technical indicators, Macmahon Holdings reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Newpark Resources and Macmahon Holdings

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

The idea behind Newpark Resources and Macmahon Holdings Limited 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.