Correlation Between NL Industries and CF Financial

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

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

Diversification Opportunities for NL Industries and CF Financial

-0.4

Correlation Coefficient

NL Industries  CF Financial

Very good diversification

The 3 months correlation between NL Industries and CFFI is -0.4. Overlapping area represents the amount of risk that can be diversified away by holding NL Industries and CF Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CF Financial 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 CF Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CF Financial has no effect on the direction of NL Industries i.e., NL Industries and CF Financial go up and down completely randomly.

Pair Corralation between NL Industries and CF Financial

Allowing for the 90-day total investment horizon NL Industries is expected to generate 1.21 times more return on investment than CF Financial. However, NL Industries is 1.21 times more volatile than CF Financial. It trades about 0.02 of its potential returns per unit of risk. CF Financial is currently generating about 0.0 per unit of risk. If you would invest  764.00  in NL Industries on December 30, 2024 and sell it today you would earn a total of  9.00  from holding NL Industries or generate 1.18% 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.  CF Financial

NL Industries

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in NL Industries are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent essential indicators, NL Industries is not utilizing all of its potentials. The current stock price mess, may contribute to short-term losses for the institutional investors.

CF Financial

Risk-Adjusted Performance

Very Weak

Over the last 90 days CF Financial has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong technical and fundamental indicators, CF Financial is not utilizing all of its potentials. The current stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with NL Industries and CF Financial

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

The idea behind NL Industries and CF Financial 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.