Correlation Between Summit Materials and NL Industries

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

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

Diversification Opportunities for Summit Materials and NL Industries

0.69

Correlation Coefficient

Summit Materials  NL Industries

Poor diversification

The 3 months correlation between Summit and NL Industries is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding Summit Materials and NL Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NL Industries and Summit Materials 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 Summit Materials 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 Summit Materials i.e., Summit Materials and NL Industries go up and down completely randomly.

Pair Corralation between Summit Materials and NL Industries

Considering the 90-day investment horizon Summit Materials is expected to generate 0.73 times more return on investment than NL Industries. However, Summit Materials is 1.37 times less risky than NL Industries. It trades about 0.26 of its potential returns per unit of risk. NL Industries is currently generating about 0.15 per unit of risk. If you would invest  3,683  in Summit Materials on September 4, 2024 and sell it today you would earn a total of  1,409  from holding Summit Materials or generate 38.26% return on investment over 90 days.

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

Summit Materials  vs.  NL Industries

Summit Materials

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Summit Materials are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Summit Materials displayed solid returns over the last few months and may actually be approaching a breakup point.

NL Industries

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in NL Industries are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite quite fragile essential indicators, NL Industries disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Summit Materials and NL Industries

The main advantage of trading using opposite Summit Materials and NL Industries positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Summit Materials 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 Summit Materials 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.

Check out your portfolio center.

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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .