Correlation Between NL Industries and Summit Materials

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

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

Diversification Opportunities for NL Industries and Summit Materials

-0.16

Correlation Coefficient

NL Industries  Summit Materials

Good diversification

The 3 months correlation between NL Industries and Summit is -0.16. Overlapping area represents the amount of risk that can be diversified away by holding NL Industries and Summit Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Summit Materials 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 Summit Materials. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Summit Materials has no effect on the direction of NL Industries i.e., NL Industries and Summit Materials go up and down completely randomly.

Pair Corralation between NL Industries and Summit Materials

Allowing for the 90-day total investment horizon NL Industries is expected to generate 1.81 times less return on investment than Summit Materials. In addition to that, NL Industries is 8.26 times more volatile than Summit Materials. It trades about 0.02 of its total potential returns per unit of risk. Summit Materials is currently generating about 0.33 per unit of volatility. If you would invest  5,054  in Summit Materials on December 30, 2024 and sell it today you would earn a total of  195.00  from holding Summit Materials or generate 3.86% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	46.77%
Values	Daily Returns

NL Industries  vs.  Summit Materials

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.

Summit Materials

Risk-Adjusted Performance

Solid

Over the last 90 days Summit Materials has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very unfluctuating basic indicators, Summit Materials may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with NL Industries and Summit Materials

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

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