Correlation Between National Grid and Vulcan Materials

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

By analyzing existing cross correlation between National Grid PLC and Vulcan Materials, you can compare the effects of market volatilities on National Grid and Vulcan 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 National Grid with a short position of Vulcan Materials. Check out your portfolio center. Please also check ongoing floating volatility patterns of National Grid and Vulcan Materials.

Diversification Opportunities for National Grid and Vulcan Materials

0.08

Correlation Coefficient

National Grid  Vulcan Materials

Significant diversification

The 3 months correlation between National and Vulcan is 0.08. Overlapping area represents the amount of risk that can be diversified away by holding National Grid PLC and Vulcan Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vulcan Materials and National Grid 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 National Grid PLC are associated (or correlated) with Vulcan Materials. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vulcan Materials has no effect on the direction of National Grid i.e., National Grid and Vulcan Materials go up and down completely randomly.

Pair Corralation between National Grid and Vulcan Materials

Assuming the 90 days trading horizon National Grid PLC is expected to generate 1.25 times more return on investment than Vulcan Materials. However, National Grid is 1.25 times more volatile than Vulcan Materials. It trades about 0.03 of its potential returns per unit of risk. Vulcan Materials is currently generating about -0.12 per unit of risk. If you would invest  1,130  in National Grid PLC on December 22, 2024 and sell it today you would earn a total of  30.00  from holding National Grid PLC or generate 2.65% return on investment over 90 days.

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

National Grid PLC  vs.  Vulcan Materials

National Grid PLC

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in National Grid PLC are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable technical and fundamental indicators, National Grid is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Vulcan Materials

Risk-Adjusted Performance

Very Weak

Over the last 90 days Vulcan Materials has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with National Grid and Vulcan Materials

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

The idea behind National Grid PLC and Vulcan 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.

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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 Sync Your Broker module to sync your existing holdings, watchlists, positions or portfolios from thousands of online brokerage services, banks, investment account aggregators and robo-advisors..