Correlation Between Geo and NL Industries

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

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

Diversification Opportunities for Geo and NL Industries

0.25

Correlation Coefficient

Geo  NL Industries

Modest diversification

The 3 months correlation between Geo and NL Industries is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding Geo Group and NL Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NL Industries and Geo 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 Geo Group 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 Geo i.e., Geo and NL Industries go up and down completely randomly.

Pair Corralation between Geo and NL Industries

Considering the 90-day investment horizon Geo Group is expected to generate 1.06 times more return on investment than NL Industries. However, Geo is 1.06 times more volatile than NL Industries. It trades about 0.02 of its potential returns per unit of risk. NL Industries is currently generating about -0.08 per unit of risk. If you would invest  2,712  in Geo Group on December 2, 2024 and sell it today you would earn a total of  24.00  from holding Geo Group or generate 0.88% return on investment over 90 days.

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

Geo Group  vs.  NL Industries

Geo Group

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Geo Group are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy technical and fundamental indicators, Geo is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

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 weak performance in the last few months, the Stock's essential indicators remain quite persistent which may send shares a bit higher in April 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Pair Trading with Geo and NL Industries

The main advantage of trading using opposite Geo and NL Industries positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Geo 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 Geo Group 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 Global Correlations module to find global opportunities by holding instruments from different markets.