Correlation Between American Coastal and NL Industries

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

By analyzing existing cross correlation between American Coastal Insurance and NL Industries, you can compare the effects of market volatilities on American Coastal and NL Industries 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 American Coastal with a short position of NL Industries. Check out your portfolio center. Please also check ongoing floating volatility patterns of American Coastal and NL Industries.

Diversification Opportunities for American Coastal and NL Industries

0.52

Correlation Coefficient

American Coastal  NL Industries

Very weak diversification

The 3 months correlation between American and NL Industries is 0.52. Overlapping area represents the amount of risk that can be diversified away by holding American Coastal Insurance and NL Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NL Industries and American Coastal 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 American Coastal Insurance are associated (or correlated) with NL Industries. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NL Industries has no effect on the direction of American Coastal i.e., American Coastal and NL Industries go up and down completely randomly.

Pair Corralation between American Coastal and NL Industries

Given the investment horizon of 90 days American Coastal Insurance is expected to generate 0.75 times more return on investment than NL Industries. However, American Coastal Insurance is 1.33 times less risky than NL Industries. It trades about -0.01 of its potential returns per unit of risk. NL Industries is currently generating about -0.06 per unit of risk. If you would invest  1,322  in American Coastal Insurance on November 29, 2024 and sell it today you would lose (43.00) from holding American Coastal Insurance or give up 3.25% of portfolio value over 90 days.

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

American Coastal Insurance  vs.  NL Industries

American Coastal Ins

Risk-Adjusted Performance

Very Weak

Over the last 90 days American Coastal Insurance has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound forward indicators, American Coastal is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

NL Industries

Risk-Adjusted Performance

Very Weak

Over the last 90 days NL Industries has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's essential indicators remain persistent and the latest mess on Wall Street may also be a sign of long-standing gains for the company institutional investors.

Pair Trading with American Coastal and NL Industries

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

The idea behind American Coastal Insurance and NL Industries 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.