Correlation Between NL Industries and BBB Foods

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

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

Diversification Opportunities for NL Industries and BBB Foods

-0.14

Correlation Coefficient

NL Industries  BBB Foods

Good diversification

The 3 months correlation between NL Industries and BBB is -0.14. Overlapping area represents the amount of risk that can be diversified away by holding NL Industries and BBB Foods in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BBB Foods 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 BBB Foods. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BBB Foods has no effect on the direction of NL Industries i.e., NL Industries and BBB Foods go up and down completely randomly.

Pair Corralation between NL Industries and BBB Foods

Allowing for the 90-day total investment horizon NL Industries is expected to under-perform the BBB Foods. In addition to that, NL Industries is 1.28 times more volatile than BBB Foods. It trades about -0.06 of its total potential returns per unit of risk. BBB Foods is currently generating about 0.01 per unit of volatility. If you would invest  2,944  in BBB Foods on October 8, 2024 and sell it today you would earn a total of  0.00  from holding BBB Foods or generate 0.0% return on investment over 90 days.

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

NL Industries  vs.  BBB Foods

NL Industries

Risk-Adjusted Performance

1 of 100

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 recent stock price mess, may contribute to short-term losses for the institutional investors.

BBB Foods

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days BBB Foods has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong fundamental drivers, BBB Foods is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with NL Industries and BBB Foods

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

The idea behind NL Industries and BBB Foods 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.