Correlation Between NACCO Industries and Natural Resource

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

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

Diversification Opportunities for NACCO Industries and Natural Resource

0.72

Correlation Coefficient

NACCO Industries  Natural Resource

Poor diversification

The 3 months correlation between NACCO and Natural is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding NACCO Industries and Natural Resource Partners in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Natural Resource Partners 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 Natural Resource. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Natural Resource Partners has no effect on the direction of NACCO Industries i.e., NACCO Industries and Natural Resource go up and down completely randomly.

Pair Corralation between NACCO Industries and Natural Resource

Allowing for the 90-day total investment horizon NACCO Industries is expected to generate 1.32 times less return on investment than Natural Resource. In addition to that, NACCO Industries is 1.39 times more volatile than Natural Resource Partners. It trades about 0.1 of its total potential returns per unit of risk. Natural Resource Partners is currently generating about 0.19 per unit of volatility. If you would invest  8,869  in Natural Resource Partners on August 30, 2024 and sell it today you would earn a total of  2,081  from holding Natural Resource Partners or generate 23.46% return on investment over 90 days.

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

NACCO Industries  vs.  Natural Resource Partners

NACCO Industries

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in NACCO Industries are ranked lower than 7 (%) 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.

Natural Resource Partners

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Natural Resource Partners are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Even with relatively fragile basic indicators, Natural Resource reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with NACCO Industries and Natural Resource

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

The idea behind NACCO Industries and Natural Resource Partners 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.