Correlation Between CVW CleanTech and NL Industries

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

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

Diversification Opportunities for CVW CleanTech and NL Industries

-0.38

Correlation Coefficient

CVW CleanTech  NL Industries

Very good diversification

The 3 months correlation between CVW and NL Industries is -0.38. Overlapping area represents the amount of risk that can be diversified away by holding CVW CleanTech and NL Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NL Industries and CVW CleanTech 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 CVW CleanTech 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 CVW CleanTech i.e., CVW CleanTech and NL Industries go up and down completely randomly.

Pair Corralation between CVW CleanTech and NL Industries

Assuming the 90 days horizon CVW CleanTech is expected to generate 1.06 times more return on investment than NL Industries. However, CVW CleanTech is 1.06 times more volatile than NL Industries. It trades about 0.05 of its potential returns per unit of risk. NL Industries is currently generating about -0.06 per unit of risk. If you would invest  59.00  in CVW CleanTech on October 7, 2024 and sell it today you would earn a total of  3.00  from holding CVW CleanTech or generate 5.08% return on investment over 90 days.

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

CVW CleanTech  vs.  NL Industries

CVW CleanTech

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in CVW CleanTech are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable technical and fundamental indicators, CVW CleanTech is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

NL Industries

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in NL Industries are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite quite fragile essential indicators, NL Industries may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with CVW CleanTech and NL Industries

The main advantage of trading using opposite CVW CleanTech and NL Industries positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if CVW CleanTech 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 CVW CleanTech 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.

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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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.