Correlation Between National Plastic and LS Materials

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

By analyzing existing cross correlation between National Plastic Co and LS Materials, you can compare the effects of market volatilities on National Plastic and LS Materials 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 National Plastic with a short position of LS Materials. Check out your portfolio center. Please also check ongoing floating volatility patterns of National Plastic and LS Materials.

Diversification Opportunities for National Plastic and LS Materials

0.72

Correlation Coefficient

National Plastic  LS Materials

Poor diversification

The 3 months correlation between National and 417200 is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding National Plastic Co and LS Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LS Materials and National Plastic 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 National Plastic Co are associated (or correlated) with LS Materials. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LS Materials has no effect on the direction of National Plastic i.e., National Plastic and LS Materials go up and down completely randomly.

Pair Corralation between National Plastic and LS Materials

Assuming the 90 days trading horizon National Plastic Co is expected to under-perform the LS Materials. But the stock apears to be less risky and, when comparing its historical volatility, National Plastic Co is 3.27 times less risky than LS Materials. The stock trades about -0.09 of its potential returns per unit of risk. The LS Materials is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  1,586,000  in LS Materials on October 23, 2024 and sell it today you would lose (109,000) from holding LS Materials or give up 6.87% of portfolio value over 90 days.

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

National Plastic Co  vs.  LS Materials

National Plastic

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days National Plastic Co has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

LS Materials

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days LS Materials has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, LS Materials is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with National Plastic and LS Materials

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

The idea behind National Plastic Co and LS Materials 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.