Correlation Between Park Electrochemical and NL Industries

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

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

Diversification Opportunities for Park Electrochemical and NL Industries

0.8

Correlation Coefficient

Park Electrochemical  NL Industries

Very poor diversification

The 3 months correlation between Park and NL Industries is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Park Electrochemical and NL Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NL Industries and Park Electrochemical 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 Park Electrochemical are associated (or correlated) with NL Industries. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NL Industries has no effect on the direction of Park Electrochemical i.e., Park Electrochemical and NL Industries go up and down completely randomly.

Pair Corralation between Park Electrochemical and NL Industries

Considering the 90-day investment horizon Park Electrochemical is expected to generate 16.65 times less return on investment than NL Industries. But when comparing it to its historical volatility, Park Electrochemical is 1.73 times less risky than NL Industries. It trades about 0.01 of its potential returns per unit of risk. NL Industries is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  502.00  in NL Industries on September 24, 2024 and sell it today you would earn a total of  294.00  from holding NL Industries or generate 58.57% return on investment over 90 days.

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

Park Electrochemical  vs.  NL Industries

Park Electrochemical

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Park Electrochemical are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady forward-looking signals, Park Electrochemical may actually be approaching a critical reversion point that can send shares even higher in January 2025.

NL Industries

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in NL Industries are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite quite unsteady essential indicators, NL Industries disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Park Electrochemical and NL Industries

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

The idea behind Park Electrochemical and NL Industries 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..