Correlation Between NACCO Industries and Adams Resources

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

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

Diversification Opportunities for NACCO Industries and Adams Resources

0.81

Correlation Coefficient

NACCO Industries  Adams Resources

Very poor diversification

The 3 months correlation between NACCO and Adams is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding NACCO Industries and Adams Resources Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Adams Resources Energy and NACCO Industries 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 NACCO Industries are associated (or correlated) with Adams Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Adams Resources Energy has no effect on the direction of NACCO Industries i.e., NACCO Industries and Adams Resources go up and down completely randomly.

Pair Corralation between NACCO Industries and Adams Resources

Allowing for the 90-day total investment horizon NACCO Industries is expected to generate 3.06 times more return on investment than Adams Resources. However, NACCO Industries is 3.06 times more volatile than Adams Resources Energy. It trades about 0.19 of its potential returns per unit of risk. Adams Resources Energy is currently generating about 0.14 per unit of risk. If you would invest  2,847  in NACCO Industries on December 26, 2024 and sell it today you would earn a total of  503.00  from holding NACCO Industries or generate 17.67% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	44.26%
Values	Daily Returns

NACCO Industries  vs.  Adams Resources Energy

NACCO Industries

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in NACCO Industries are ranked lower than 14 (%) 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.

Adams Resources Energy

Risk-Adjusted Performance

Good

Over the last 90 days Adams Resources Energy has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, Adams Resources is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with NACCO Industries and Adams Resources

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

The idea behind NACCO Industries and Adams Resources Energy 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.