Correlation Between Newpark Resources and National Energy

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

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

Diversification Opportunities for Newpark Resources and National Energy

-0.4

Correlation Coefficient

Newpark Resources  National Energy

Very good diversification

The 3 months correlation between Newpark and National is -0.4. Overlapping area represents the amount of risk that can be diversified away by holding Newpark Resources and National Energy Services in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on National Energy Services 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 National Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of National Energy Services has no effect on the direction of Newpark Resources i.e., Newpark Resources and National Energy go up and down completely randomly.

Pair Corralation between Newpark Resources and National Energy

Allowing for the 90-day total investment horizon Newpark Resources is expected to generate 1.39 times more return on investment than National Energy. However, Newpark Resources is 1.39 times more volatile than National Energy Services. It trades about 0.03 of its potential returns per unit of risk. National Energy Services is currently generating about 0.0 per unit of risk. If you would invest  708.00  in Newpark Resources on October 21, 2024 and sell it today you would earn a total of  16.00  from holding Newpark Resources or generate 2.26% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	70.97%
Values	Daily Returns

Newpark Resources  vs.  National Energy Services

Newpark Resources

Risk-Adjusted Performance

0 of 100

Weak

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.

National Energy Services

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days National Energy Services has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable basic indicators, National Energy is not utilizing all of its potentials. The recent stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Newpark Resources and National Energy

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

The idea behind Newpark Resources and National Energy 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.