Correlation Between River and New Residential

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

By analyzing existing cross correlation between River and Mercantile and New Residential Investment, you can compare the effects of market volatilities on River and New Residential 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 River with a short position of New Residential. Check out your portfolio center. Please also check ongoing floating volatility patterns of River and New Residential.

Diversification Opportunities for River and New Residential

0.37

Correlation Coefficient

River  New Residential

Weak diversification

The 3 months correlation between River and New is 0.37. Overlapping area represents the amount of risk that can be diversified away by holding River and Mercantile and New Residential Investment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on New Residential Inve and River 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 River and Mercantile are associated (or correlated) with New Residential. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of New Residential Inve has no effect on the direction of River i.e., River and New Residential go up and down completely randomly.

Pair Corralation between River and New Residential

Assuming the 90 days trading horizon River is expected to generate 1.23 times less return on investment than New Residential. But when comparing it to its historical volatility, River and Mercantile is 1.15 times less risky than New Residential. It trades about 0.05 of its potential returns per unit of risk. New Residential Investment is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  906.00  in New Residential Investment on October 21, 2024 and sell it today you would earn a total of  230.00  from holding New Residential Investment or generate 25.39% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	99.66%
Values	Daily Returns

River and Mercantile  vs.  New Residential Investment

River and Mercantile

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in River and Mercantile are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, River is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

New Residential Inve

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in New Residential Investment are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, New Residential may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with River and New Residential

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

The idea behind River and Mercantile and New Residential Investment 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.