Correlation Between Newpark Resources and EMCOR

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

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

Diversification Opportunities for Newpark Resources and EMCOR

0.81

Correlation Coefficient

Newpark Resources  EMCOR

Very poor diversification

The 3 months correlation between Newpark and EMCOR is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Newpark Resources and EMCOR Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on EMCOR Group 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 EMCOR. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of EMCOR Group has no effect on the direction of Newpark Resources i.e., Newpark Resources and EMCOR go up and down completely randomly.

Pair Corralation between Newpark Resources and EMCOR

Allowing for the 90-day total investment horizon Newpark Resources is expected to generate 1.44 times less return on investment than EMCOR. In addition to that, Newpark Resources is 1.22 times more volatile than EMCOR Group. It trades about 0.1 of its total potential returns per unit of risk. EMCOR Group is currently generating about 0.18 per unit of volatility. If you would invest  35,462  in EMCOR Group on March 2, 2024 and sell it today you would earn a total of  4,097  from holding EMCOR Group or generate 11.55% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	100.0%
Values	Daily Returns

Newpark Resources  vs.  EMCOR Group

Newpark Resources

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Newpark Resources are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Even with relatively unfluctuating basic indicators, Newpark Resources reported solid returns over the last few months and may actually be approaching a breakup point.

EMCOR Group

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in EMCOR Group are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. In spite of rather conflicting primary indicators, EMCOR exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Newpark Resources and EMCOR

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

The idea behind Newpark Resources and EMCOR Group 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 Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.