Correlation Between NL Industries and CompX International

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

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

Diversification Opportunities for NL Industries and CompX International

0.58

Correlation Coefficient

NL Industries  CompX International

Very weak diversification

The 3 months correlation between NL Industries and CompX is 0.58. Overlapping area represents the amount of risk that can be diversified away by holding NL Industries and CompX International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CompX International 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 CompX International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CompX International has no effect on the direction of NL Industries i.e., NL Industries and CompX International go up and down completely randomly.

Pair Corralation between NL Industries and CompX International

Allowing for the 90-day total investment horizon NL Industries is expected to under-perform the CompX International. But the stock apears to be less risky and, when comparing its historical volatility, NL Industries is 1.51 times less risky than CompX International. The stock trades about -0.05 of its potential returns per unit of risk. The CompX International is currently generating about -0.03 of returns per unit of risk over similar time horizon. If you would invest  2,747  in CompX International on November 27, 2024 and sell it today you would lose (346.00) from holding CompX International or give up 12.6% of portfolio value over 90 days.

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

NL Industries  vs.  CompX International

NL Industries

Risk-Adjusted Performance

Very Weak

Over the last 90 days NL Industries has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's essential indicators remain persistent and the latest mess on Wall Street may also be a sign of long-standing gains for the company institutional investors.

CompX International

Risk-Adjusted Performance

Very Weak

Over the last 90 days CompX International has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest conflicting performance, the Stock's forward indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with NL Industries and CompX International

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

The idea behind NL Industries and CompX International 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.