Correlation Between NL Industries and KINDER

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

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

Diversification Opportunities for NL Industries and KINDER

0.49

Correlation Coefficient

NL Industries  KINDER

Very weak diversification

The 3 months correlation between NL Industries and KINDER is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding NL Industries and KINDER MORGAN ENERGY in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on KINDER MORGAN ENERGY 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 KINDER. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of KINDER MORGAN ENERGY has no effect on the direction of NL Industries i.e., NL Industries and KINDER go up and down completely randomly.

Pair Corralation between NL Industries and KINDER

Allowing for the 90-day total investment horizon NL Industries is expected to under-perform the KINDER. In addition to that, NL Industries is 1.87 times more volatile than KINDER MORGAN ENERGY. It trades about -0.22 of its total potential returns per unit of risk. KINDER MORGAN ENERGY is currently generating about 0.23 per unit of volatility. If you would invest  9,194  in KINDER MORGAN ENERGY on October 22, 2024 and sell it today you would earn a total of  329.00  from holding KINDER MORGAN ENERGY or generate 3.58% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	94.44%
Values	Daily Returns

NL Industries  vs.  KINDER MORGAN ENERGY

NL Industries

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days NL Industries has generated negative risk-adjusted returns adding no value to investors with long positions. 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.

KINDER MORGAN ENERGY

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days KINDER MORGAN ENERGY has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, KINDER is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with NL Industries and KINDER

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

The idea behind NL Industries and KINDER MORGAN ENERGY 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..