Correlation Between Primoris Services and NL Industries

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

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

Diversification Opportunities for Primoris Services and NL Industries

0.27

Correlation Coefficient

Primoris Services  NL Industries

Modest diversification

The 3 months correlation between Primoris and NL Industries is 0.27. Overlapping area represents the amount of risk that can be diversified away by holding Primoris Services and NL Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NL Industries and Primoris Services 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 Primoris Services 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 Primoris Services i.e., Primoris Services and NL Industries go up and down completely randomly.

Pair Corralation between Primoris Services and NL Industries

Given the investment horizon of 90 days Primoris Services is expected to generate 0.73 times more return on investment than NL Industries. However, Primoris Services is 1.36 times less risky than NL Industries. It trades about 0.05 of its potential returns per unit of risk. NL Industries is currently generating about -0.07 per unit of risk. If you would invest  7,746  in Primoris Services on October 11, 2024 and sell it today you would earn a total of  147.00  from holding Primoris Services or generate 1.9% return on investment over 90 days.

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

Primoris Services  vs.  NL Industries

Primoris Services

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Primoris Services are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of very fragile forward indicators, Primoris Services displayed solid returns over the last few months and may actually be approaching a breakup point.

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.

Pair Trading with Primoris Services and NL Industries

The main advantage of trading using opposite Primoris Services and NL Industries positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Primoris Services 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 Primoris Services 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 Transaction History module to view history of all your transactions and understand their impact on performance.