Correlation Between NL Industries and Ambev SA

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

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

Diversification Opportunities for NL Industries and Ambev SA

-0.25

Correlation Coefficient

NL Industries  Ambev SA

Very good diversification

The 3 months correlation between NL Industries and Ambev is -0.25. Overlapping area represents the amount of risk that can be diversified away by holding NL Industries and Ambev SA ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ambev SA ADR and NL 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 NL Industries are associated (or correlated) with Ambev SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ambev SA ADR has no effect on the direction of NL Industries i.e., NL Industries and Ambev SA go up and down completely randomly.

Pair Corralation between NL Industries and Ambev SA

Allowing for the 90-day total investment horizon NL Industries is expected to generate 1.48 times more return on investment than Ambev SA. However, NL Industries is 1.48 times more volatile than Ambev SA ADR. It trades about -0.11 of its potential returns per unit of risk. Ambev SA ADR is currently generating about -0.38 per unit of risk. If you would invest  806.00  in NL Industries on October 9, 2024 and sell it today you would lose (58.00) from holding NL Industries or give up 7.2% of portfolio value over 90 days.

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

NL Industries  vs.  Ambev SA ADR

NL Industries

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days NL Industries has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent essential indicators, NL Industries is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Ambev SA ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Ambev SA ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's technical and fundamental indicators remain fairly stable which may send shares a bit higher in February 2025. The latest fuss may also be a sign of long-term up-swing for the venture sophisticated investors.

Pair Trading with NL Industries and Ambev SA

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

The idea behind NL Industries and Ambev SA ADR 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.