Correlation Between Newpark Resources and Dawson Geophysical
Can any of the company-specific risk be diversified away by investing in both Newpark Resources and Dawson Geophysical 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 Dawson Geophysical into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Newpark Resources and Dawson Geophysical, you can compare the effects of market volatilities on Newpark Resources and Dawson Geophysical 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 Dawson Geophysical. Check out your portfolio center. Please also check ongoing floating volatility patterns of Newpark Resources and Dawson Geophysical.
Diversification Opportunities for Newpark Resources and Dawson Geophysical
0.15 | Correlation Coefficient |
Average diversification
The 3 months correlation between Newpark and Dawson is 0.15. Overlapping area represents the amount of risk that can be diversified away by holding Newpark Resources and Dawson Geophysical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dawson Geophysical 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 Dawson Geophysical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dawson Geophysical has no effect on the direction of Newpark Resources i.e., Newpark Resources and Dawson Geophysical go up and down completely randomly.
Pair Corralation between Newpark Resources and Dawson Geophysical
Allowing for the 90-day total investment horizon Newpark Resources is expected to under-perform the Dawson Geophysical. But the stock apears to be less risky and, when comparing its historical volatility, Newpark Resources is 3.6 times less risky than Dawson Geophysical. The stock trades about -0.07 of its potential returns per unit of risk. The Dawson Geophysical is currently generating about 0.34 of returns per unit of risk over similar time horizon. If you would invest 146.00 in Dawson Geophysical on January 20, 2024 and sell it today you would earn a total of 73.00 from holding Dawson Geophysical or generate 50.0% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Newpark Resources vs. Dawson Geophysical
Performance |
| Timeline |
| Newpark Resources |
| Dawson Geophysical |
Newpark Resources and Dawson Geophysical Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Newpark Resources and Dawson Geophysical
The main advantage of trading using opposite Newpark Resources and Dawson Geophysical positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Newpark Resources position performs unexpectedly, Dawson Geophysical 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 Dawson Geophysical will offset losses from the drop in Dawson Geophysical's long position.The idea behind Newpark Resources and Dawson Geophysical 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.Check out your portfolio center.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 Global Correlations module to find global opportunities by holding instruments from different markets.
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