Correlation Between NL Industries and Compania Cervecerias

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

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

Diversification Opportunities for NL Industries and Compania Cervecerias

0.31

Correlation Coefficient

NL Industries  Compania Cervecerias

Weak diversification

The 3 months correlation between NL Industries and Compania is 0.31. Overlapping area represents the amount of risk that can be diversified away by holding NL Industries and Compania Cervecerias Unidas in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Compania Cervecerias 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 Compania Cervecerias. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Compania Cervecerias has no effect on the direction of NL Industries i.e., NL Industries and Compania Cervecerias go up and down completely randomly.

Pair Corralation between NL Industries and Compania Cervecerias

Allowing for the 90-day total investment horizon NL Industries is expected to under-perform the Compania Cervecerias. In addition to that, NL Industries is 2.57 times more volatile than Compania Cervecerias Unidas. It trades about -0.11 of its total potential returns per unit of risk. Compania Cervecerias Unidas is currently generating about -0.02 per unit of volatility. If you would invest  1,164  in Compania Cervecerias Unidas on October 9, 2024 and sell it today you would lose (8.00) from holding Compania Cervecerias Unidas or give up 0.69% of portfolio value over 90 days.

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

NL Industries  vs.  Compania Cervecerias Unidas

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.

Compania Cervecerias

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Compania Cervecerias Unidas are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable fundamental indicators, Compania Cervecerias 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 Compania Cervecerias

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

The idea behind NL Industries and Compania Cervecerias Unidas 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.