Correlation Between NL Industries and ONCOR

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Can any of the company-specific risk be diversified away by investing in both NL Industries and ONCOR 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 ONCOR into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between NL Industries and ONCOR ELEC DELIVERY, you can compare the effects of market volatilities on NL Industries and ONCOR 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 ONCOR. Check out your portfolio center. Please also check ongoing floating volatility patterns of NL Industries and ONCOR.

Diversification Opportunities for NL Industries and ONCOR

0.23
  Correlation Coefficient

Modest diversification

The 3 months correlation between NL Industries and ONCOR is 0.23. Overlapping area represents the amount of risk that can be diversified away by holding NL Industries and ONCOR ELEC DELIVERY in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ONCOR ELEC DELIVERY 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 ONCOR. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ONCOR ELEC DELIVERY has no effect on the direction of NL Industries i.e., NL Industries and ONCOR go up and down completely randomly.

Pair Corralation between NL Industries and ONCOR

Allowing for the 90-day total investment horizon NL Industries is expected to generate 4.12 times more return on investment than ONCOR. However, NL Industries is 4.12 times more volatile than ONCOR ELEC DELIVERY. It trades about 0.09 of its potential returns per unit of risk. ONCOR ELEC DELIVERY is currently generating about -0.04 per unit of risk. If you would invest  676.00  in NL Industries on September 14, 2024 and sell it today you would earn a total of  103.00  from holding NL Industries or generate 15.24% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Weak
Accuracy61.9%
ValuesDaily Returns

NL Industries  vs.  ONCOR ELEC DELIVERY

 Performance 
       Timeline  
NL Industries 

Risk-Adjusted Performance

6 of 100

 
Weak
 
Strong
OK
Compared to the overall equity markets, risk-adjusted returns on investments in NL Industries are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite quite weak essential indicators, NL Industries disclosed solid returns over the last few months and may actually be approaching a breakup point.
ONCOR ELEC DELIVERY 

Risk-Adjusted Performance

0 of 100

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

NL Industries and ONCOR Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with NL Industries and ONCOR

The main advantage of trading using opposite NL Industries and ONCOR positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if NL Industries position performs unexpectedly, ONCOR 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 ONCOR will offset losses from the drop in ONCOR's long position.
The idea behind NL Industries and ONCOR ELEC DELIVERY 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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.

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