Correlation Between NACCO Industries and Dow

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

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

Diversification Opportunities for NACCO Industries and Dow

0.16

Correlation Coefficient

NACCO Industries  Dow

Average diversification

The 3 months correlation between NACCO and Dow is 0.16. Overlapping area represents the amount of risk that can be diversified away by holding NACCO Industries and Dow Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dow Inc 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 Dow. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dow Inc has no effect on the direction of NACCO Industries i.e., NACCO Industries and Dow go up and down completely randomly.

Pair Corralation between NACCO Industries and Dow

Allowing for the 90-day total investment horizon NACCO Industries is expected to generate 1.78 times more return on investment than Dow. However, NACCO Industries is 1.78 times more volatile than Dow Inc. It trades about 0.0 of its potential returns per unit of risk. Dow Inc is currently generating about -0.04 per unit of risk. If you would invest  3,541  in NACCO Industries on November 19, 2024 and sell it today you would lose (344.00) from holding NACCO Industries or give up 9.71% of portfolio value over 90 days.

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

NACCO Industries  vs.  Dow Inc

NACCO Industries

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in NACCO Industries are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak fundamental indicators, NACCO Industries may actually be approaching a critical reversion point that can send shares even higher in March 2025.

Dow Inc

Risk-Adjusted Performance

Very Weak

Over the last 90 days Dow Inc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unfluctuating performance, the Stock's basic indicators remain stable and the latest fuss on Wall Street may also be a sign of long-term gains for the venture sophisticated investors.

Pair Trading with NACCO Industries and Dow

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

The idea behind NACCO Industries and Dow Inc 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.