Correlation Between NL Industries and Brinks

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

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

Diversification Opportunities for NL Industries and Brinks

-0.41

Correlation Coefficient

NL Industries  Brinks

Very good diversification

The 3 months correlation between NL Industries and Brinks is -0.41. Overlapping area represents the amount of risk that can be diversified away by holding NL Industries and Brinks Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Brinks Company 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 Brinks. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Brinks Company has no effect on the direction of NL Industries i.e., NL Industries and Brinks go up and down completely randomly.

Pair Corralation between NL Industries and Brinks

Allowing for the 90-day total investment horizon NL Industries is expected to generate 1.83 times more return on investment than Brinks. However, NL Industries is 1.83 times more volatile than Brinks Company. It trades about 0.14 of its potential returns per unit of risk. Brinks Company is currently generating about -0.09 per unit of risk. If you would invest  634.00  in NL Industries on September 1, 2024 and sell it today you would earn a total of  161.00  from holding NL Industries or generate 25.39% return on investment over 90 days.

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

NL Industries  vs.  Brinks Company

NL Industries

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in NL Industries are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite quite fragile essential indicators, NL Industries disclosed solid returns over the last few months and may actually be approaching a breakup point.

Brinks Company

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Brinks Company has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest fragile performance, the Stock's fundamental indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Pair Trading with NL Industries and Brinks

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

The idea behind NL Industries and Brinks Company 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 Money Managers module to screen money managers from public funds and ETFs managed around the world.