Correlation Between NL Industries and Cars

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

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

Diversification Opportunities for NL Industries and Cars

0.3

Correlation Coefficient

NL Industries  Cars

Weak diversification

The 3 months correlation between NL Industries and Cars is 0.3. Overlapping area represents the amount of risk that can be diversified away by holding NL Industries and Cars Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cars Inc 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 Cars. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cars Inc has no effect on the direction of NL Industries i.e., NL Industries and Cars go up and down completely randomly.

Pair Corralation between NL Industries and Cars

Allowing for the 90-day total investment horizon NL Industries is expected to generate 1.42 times more return on investment than Cars. However, NL Industries is 1.42 times more volatile than Cars Inc. It trades about 0.11 of its potential returns per unit of risk. Cars Inc is currently generating about -0.03 per unit of risk. If you would invest  544.00  in NL Industries on September 25, 2024 and sell it today you would earn a total of  251.00  from holding NL Industries or generate 46.14% return on investment over 90 days.

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

NL Industries  vs.  Cars Inc

NL Industries

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in NL Industries are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite quite unsteady essential indicators, NL Industries disclosed solid returns over the last few months and may actually be approaching a breakup point.

Cars Inc

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Cars Inc are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Cars is not utilizing all of its potentials. The recent stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with NL Industries and Cars

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

The idea behind NL Industries and Cars 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.