Correlation Between NL Industries and Valhi

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

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

Diversification Opportunities for NL Industries and Valhi

-0.04

Correlation Coefficient

NL Industries  Valhi

Good diversification

The 3 months correlation between NL Industries and Valhi is -0.04. Overlapping area represents the amount of risk that can be diversified away by holding NL Industries and Valhi Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Valhi Inc 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 Valhi. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Valhi Inc has no effect on the direction of NL Industries i.e., NL Industries and Valhi go up and down completely randomly.

Pair Corralation between NL Industries and Valhi

Allowing for the 90-day total investment horizon NL Industries is expected to generate 0.76 times more return on investment than Valhi. However, NL Industries is 1.31 times less risky than Valhi. It trades about 0.03 of its potential returns per unit of risk. Valhi Inc is currently generating about 0.01 per unit of risk. If you would invest  610.00  in NL Industries on October 15, 2024 and sell it today you would earn a total of  136.00  from holding NL Industries or generate 22.3% 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.  Valhi Inc

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.

Valhi Inc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Valhi Inc has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unfluctuating performance in the last few months, the Stock's technical indicators remain fairly strong which may send shares a bit higher in February 2025. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.

Pair Trading with NL Industries and Valhi

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

The idea behind NL Industries and Valhi Inc 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 Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.