Correlation Between Newlake Capital and Power REIT

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

By analyzing existing cross correlation between Newlake Capital Partners and Power REIT, you can compare the effects of market volatilities on Newlake Capital and Power REIT 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 Newlake Capital with a short position of Power REIT. Check out your portfolio center. Please also check ongoing floating volatility patterns of Newlake Capital and Power REIT.

Diversification Opportunities for Newlake Capital and Power REIT

-0.13

Correlation Coefficient

Newlake Capital  Power REIT

Good diversification

The 3 months correlation between Newlake and Power is -0.13. Overlapping area represents the amount of risk that can be diversified away by holding Newlake Capital Partners and Power REIT in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Power REIT and Newlake Capital 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 Newlake Capital Partners are associated (or correlated) with Power REIT. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Power REIT has no effect on the direction of Newlake Capital i.e., Newlake Capital and Power REIT go up and down completely randomly.

Pair Corralation between Newlake Capital and Power REIT

Given the investment horizon of 90 days Newlake Capital Partners is expected to generate 0.32 times more return on investment than Power REIT. However, Newlake Capital Partners is 3.11 times less risky than Power REIT. It trades about 0.03 of its potential returns per unit of risk. Power REIT is currently generating about -0.07 per unit of risk. If you would invest  1,690  in Newlake Capital Partners on February 24, 2024 and sell it today you would earn a total of  314.00  from holding Newlake Capital Partners or generate 18.58% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	99.4%
Values	Daily Returns

Newlake Capital Partners  vs.  Power REIT

Newlake Capital Partners

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Newlake Capital Partners are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Even with relatively fragile fundamental indicators, Newlake Capital reported solid returns over the last few months and may actually be approaching a breakup point.

Power REIT

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Power REIT are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Power REIT showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Newlake Capital and Power REIT

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

The idea behind Newlake Capital Partners and Power REIT 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.