Correlation Between Target Hospitality and NL Industries

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

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

Diversification Opportunities for Target Hospitality and NL Industries

0.05

Correlation Coefficient

Target Hospitality  NL Industries

Significant diversification

The 3 months correlation between Target and NL Industries is 0.05. Overlapping area represents the amount of risk that can be diversified away by holding Target Hospitality Corp and NL Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NL Industries and Target Hospitality 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 Target Hospitality Corp 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 Target Hospitality i.e., Target Hospitality and NL Industries go up and down completely randomly.

Pair Corralation between Target Hospitality and NL Industries

Allowing for the 90-day total investment horizon Target Hospitality Corp is expected to under-perform the NL Industries. In addition to that, Target Hospitality is 2.29 times more volatile than NL Industries. It trades about -0.06 of its total potential returns per unit of risk. NL Industries is currently generating about -0.05 per unit of volatility. If you would invest  789.00  in NL Industries on November 27, 2024 and sell it today you would lose (88.00) from holding NL Industries or give up 11.15% of portfolio value over 90 days.

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

Target Hospitality Corp  vs.  NL Industries

Target Hospitality Corp

Risk-Adjusted Performance

Very Weak

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

NL Industries

Risk-Adjusted Performance

Very Weak

Over the last 90 days NL Industries has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's essential indicators remain persistent and the latest mess on Wall Street may also be a sign of long-standing gains for the company institutional investors.

Pair Trading with Target Hospitality and NL Industries

The main advantage of trading using opposite Target Hospitality and NL Industries positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Target Hospitality 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 Target Hospitality Corp 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 Financial Widgets module to easily integrated Macroaxis content with over 30 different plug-and-play financial widgets.