Correlation Between Newpark Resources and Montauk Renewables

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

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

Diversification Opportunities for Newpark Resources and Montauk Renewables

-0.65

Correlation Coefficient

Newpark Resources  Montauk Renewables

Excellent diversification

The 3 months correlation between Newpark and Montauk is -0.65. Overlapping area represents the amount of risk that can be diversified away by holding Newpark Resources and Montauk Renewables in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Montauk Renewables 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 Montauk Renewables. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Montauk Renewables has no effect on the direction of Newpark Resources i.e., Newpark Resources and Montauk Renewables go up and down completely randomly.

Pair Corralation between Newpark Resources and Montauk Renewables

Allowing for the 90-day total investment horizon Newpark Resources is expected to under-perform the Montauk Renewables. But the stock apears to be less risky and, when comparing its historical volatility, Newpark Resources is 2.11 times less risky than Montauk Renewables. The stock trades about -0.38 of its potential returns per unit of risk. The Montauk Renewables is currently generating about 0.29 of returns per unit of risk over similar time horizon. If you would invest  391.00  in Montauk Renewables on October 8, 2024 and sell it today you would earn a total of  103.00  from holding Montauk Renewables or generate 26.34% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	52.63%
Values	Daily Returns

Newpark Resources  vs.  Montauk Renewables

Newpark Resources

Risk-Adjusted Performance

0 of 100

Insignificant

Over the last 90 days Newpark Resources has generated negative risk-adjusted returns adding no value to investors with long positions. 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.

Montauk Renewables

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Montauk Renewables has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent basic indicators, Montauk Renewables is not utilizing all of its potentials. The current stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Newpark Resources and Montauk Renewables

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

The idea behind Newpark Resources and Montauk Renewables 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.