Correlation Between Delek Energy and NACCO Industries

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

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

Diversification Opportunities for Delek Energy and NACCO Industries

-0.5

Correlation Coefficient

Delek Energy  NACCO Industries

Very good diversification

The 3 months correlation between Delek and NACCO is -0.5. Overlapping area represents the amount of risk that can be diversified away by holding Delek Energy and NACCO Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NACCO Industries and Delek Energy 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 Delek Energy are associated (or correlated) with NACCO Industries. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NACCO Industries has no effect on the direction of Delek Energy i.e., Delek Energy and NACCO Industries go up and down completely randomly.

Pair Corralation between Delek Energy and NACCO Industries

Allowing for the 90-day total investment horizon Delek Energy is expected to under-perform the NACCO Industries. In addition to that, Delek Energy is 2.26 times more volatile than NACCO Industries. It trades about -0.02 of its total potential returns per unit of risk. NACCO Industries is currently generating about 0.22 per unit of volatility. If you would invest  2,793  in NACCO Industries on December 27, 2024 and sell it today you would earn a total of  568.00  from holding NACCO Industries or generate 20.34% return on investment over 90 days.

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

Delek Energy  vs.  NACCO Industries

Delek Energy

Risk-Adjusted Performance

Very Weak

Over the last 90 days Delek Energy has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent forward-looking signals, Delek Energy is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

NACCO Industries

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in NACCO Industries are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak fundamental indicators, NACCO Industries exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Delek Energy and NACCO Industries

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

The idea behind Delek Energy and NACCO 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.