Correlation Between NL Industries and Rivian Automotive

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

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

Diversification Opportunities for NL Industries and Rivian Automotive

0.31

Correlation Coefficient

NL Industries  Rivian Automotive

Weak diversification

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

Pair Corralation between NL Industries and Rivian Automotive

Allowing for the 90-day total investment horizon NL Industries is expected to under-perform the Rivian Automotive. But the stock apears to be less risky and, when comparing its historical volatility, NL Industries is 1.53 times less risky than Rivian Automotive. The stock trades about 0.0 of its potential returns per unit of risk. The Rivian Automotive is currently generating about 0.22 of returns per unit of risk over similar time horizon. If you would invest  1,160  in Rivian Automotive on September 25, 2024 and sell it today you would earn a total of  253.00  from holding Rivian Automotive or generate 21.81% 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.  Rivian Automotive

NL Industries

Risk-Adjusted Performance

4 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in NL Industries are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite quite unsteady essential indicators, NL Industries may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Rivian Automotive

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Rivian Automotive are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Rivian Automotive displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with NL Industries and Rivian Automotive

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

The idea behind NL Industries and Rivian Automotive 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.

Check out your portfolio center.

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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.