Correlation Between Jacobs Solutions and NL Industries

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

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

Diversification Opportunities for Jacobs Solutions and NL Industries

0.61

Correlation Coefficient

Jacobs Solutions  NL Industries

Poor diversification

The 3 months correlation between Jacobs and NL Industries is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding Jacobs Solutions and NL Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NL Industries and Jacobs Solutions 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 Jacobs Solutions 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 Jacobs Solutions i.e., Jacobs Solutions and NL Industries go up and down completely randomly.

Pair Corralation between Jacobs Solutions and NL Industries

Taking into account the 90-day investment horizon Jacobs Solutions is expected to under-perform the NL Industries. But the stock apears to be less risky and, when comparing its historical volatility, Jacobs Solutions is 2.88 times less risky than NL Industries. The stock trades about -0.16 of its potential returns per unit of risk. The NL Industries is currently generating about -0.05 of returns per unit of risk over similar time horizon. If you would invest  789.00  in NL Industries on November 27, 2024 and sell it today you would lose (88.00) from holding NL Industries or give up 11.15% of portfolio value over 90 days.

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

Jacobs Solutions  vs.  NL Industries

Jacobs Solutions

Risk-Adjusted Performance

Very Weak

Over the last 90 days Jacobs Solutions has generated negative risk-adjusted returns adding no value to investors with long positions. Even with latest weak performance, the Stock's forward-looking indicators remain steady and the new chaos on Wall Street may also be a sign of medium-term gains for the company stakeholders.

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 Jacobs Solutions and NL Industries

The main advantage of trading using opposite Jacobs Solutions and NL Industries positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Jacobs Solutions 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 Jacobs Solutions 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.