Correlation Between Newpark Resources and Royalty Management

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

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

Diversification Opportunities for Newpark Resources and Royalty Management

0.08

Correlation Coefficient

Newpark Resources  Royalty Management

Significant diversification

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

Pair Corralation between Newpark Resources and Royalty Management

Allowing for the 90-day total investment horizon Newpark Resources is expected to generate 0.42 times more return on investment than Royalty Management. However, Newpark Resources is 2.38 times less risky than Royalty Management. It trades about 0.05 of its potential returns per unit of risk. Royalty Management Holding is currently generating about -0.04 per unit of risk. If you would invest  458.00  in Newpark Resources on October 15, 2024 and sell it today you would earn a total of  266.00  from holding Newpark Resources or generate 58.08% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	97.18%
Values	Daily Returns

Newpark Resources  vs.  Royalty Management Holding

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 abnormal basic indicators, Newpark Resources may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Royalty Management

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Royalty Management Holding are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of very inconsistent fundamental indicators, Royalty Management may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Newpark Resources and Royalty Management

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

The idea behind Newpark Resources and Royalty Management Holding 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.