Correlation Between Alfa Financial and New Residential

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

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

Diversification Opportunities for Alfa Financial and New Residential

0.67

Correlation Coefficient

Alfa Financial  New Residential

Poor diversification

The 3 months correlation between Alfa and New is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Alfa Financial Software 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 Alfa Financial 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 Alfa Financial Software 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 Alfa Financial i.e., Alfa Financial and New Residential go up and down completely randomly.

Pair Corralation between Alfa Financial and New Residential

Assuming the 90 days trading horizon Alfa Financial Software is expected to generate 0.92 times more return on investment than New Residential. However, Alfa Financial Software is 1.08 times less risky than New Residential. It trades about -0.01 of its potential returns per unit of risk. New Residential Investment is currently generating about -0.11 per unit of risk. If you would invest  232.00  in Alfa Financial Software on January 13, 2025 and sell it today you would lose (6.00) from holding Alfa Financial Software or give up 2.59% of portfolio value over 90 days.

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

Alfa Financial Software  vs.  New Residential Investment

Alfa Financial Software

Risk-Adjusted Performance

Very Weak

Over the last 90 days Alfa Financial Software has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Alfa Financial 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

Very Weak

Over the last 90 days New Residential Investment has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unsteady performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in May 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Alfa Financial and New Residential

The main advantage of trading using opposite Alfa Financial and New Residential positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Alfa Financial 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 Alfa Financial Software 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.

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 Equity Valuation module to check real value of public entities based on technical and fundamental data.