Correlation Between Newpark Resources and Oil States

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

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

Diversification Opportunities for Newpark Resources and Oil States

0.8

Correlation Coefficient

Newpark Resources  Oil States

Very poor diversification

The 3 months correlation between Newpark and Oil is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Newpark Resources and Oil States International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Oil States International 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 Oil States. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Oil States International has no effect on the direction of Newpark Resources i.e., Newpark Resources and Oil States go up and down completely randomly.

Pair Corralation between Newpark Resources and Oil States

Allowing for the 90-day total investment horizon Newpark Resources is expected to generate 0.49 times more return on investment than Oil States. However, Newpark Resources is 2.02 times less risky than Oil States. It trades about -0.1 of its potential returns per unit of risk. Oil States International is currently generating about -0.15 per unit of risk. If you would invest  693.00  in Newpark Resources on August 1, 2024 and sell it today you would lose (21.00) from holding Newpark Resources or give up 3.03% of portfolio value over 90 days.

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

Newpark Resources  vs.  Oil States International

Newpark Resources

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Newpark Resources has generated negative risk-adjusted returns adding no value to investors with long positions. Even with abnormal performance in the last few months, the Stock's basic indicators remain relatively invariable which may send shares a bit higher in November 2024. The latest agitation may also be a sign of long-running up-swing for the enterprise retail investors.

Oil States International

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Oil States International has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of inconsistent performance in the last few months, the Stock's forward indicators remain comparatively stable which may send shares a bit higher in November 2024. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with Newpark Resources and Oil States

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

The idea behind Newpark Resources and Oil States International 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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.