Correlation Between NL Industries and Lucid

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

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

Diversification Opportunities for NL Industries and Lucid

-0.59

Correlation Coefficient

NL Industries  Lucid

Excellent diversification

The 3 months correlation between NL Industries and Lucid is -0.59. Overlapping area represents the amount of risk that can be diversified away by holding NL Industries and Lucid Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lucid Group 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 Lucid. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lucid Group has no effect on the direction of NL Industries i.e., NL Industries and Lucid go up and down completely randomly.

Pair Corralation between NL Industries and Lucid

Allowing for the 90-day total investment horizon NL Industries is expected to generate 0.59 times more return on investment than Lucid. However, NL Industries is 1.69 times less risky than Lucid. It trades about 0.11 of its potential returns per unit of risk. Lucid Group is currently generating about 0.05 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 Against
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

NL Industries  vs.  Lucid Group

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.

Lucid Group

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Lucid Group has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound forward indicators, Lucid is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with NL Industries and Lucid

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

The idea behind NL Industries and Lucid Group 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.