Correlation Between Tenaris SA and NPK International

Can any of the company-specific risk be diversified away by investing in both Tenaris SA and NPK International 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 Tenaris SA and NPK International into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Tenaris SA ADR and NPK International, you can compare the effects of market volatilities on Tenaris SA and NPK International 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 Tenaris SA with a short position of NPK International. Check out your portfolio center. Please also check ongoing floating volatility patterns of Tenaris SA and NPK International.

Diversification Opportunities for Tenaris SA and NPK International

0.75

Correlation Coefficient

Tenaris SA  NPK International

Poor diversification

The 3 months correlation between Tenaris and NPK is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Tenaris SA ADR and NPK International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NPK International and Tenaris SA 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 Tenaris SA ADR are associated (or correlated) with NPK International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NPK International has no effect on the direction of Tenaris SA i.e., Tenaris SA and NPK International go up and down completely randomly.

Pair Corralation between Tenaris SA and NPK International

Allowing for the 90-day total investment horizon Tenaris SA is expected to generate 2.08 times less return on investment than NPK International. But when comparing it to its historical volatility, Tenaris SA ADR is 1.88 times less risky than NPK International. It trades about 0.24 of its potential returns per unit of risk. NPK International is currently generating about 0.26 of returns per unit of risk over similar time horizon. If you would invest  730.00  in NPK International on October 23, 2024 and sell it today you would earn a total of  52.00  from holding NPK International or generate 7.12% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	94.74%
Values	Daily Returns

Tenaris SA ADR  vs.  NPK International

Tenaris SA ADR

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Tenaris SA ADR are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively inconsistent basic indicators, Tenaris SA unveiled solid returns over the last few months and may actually be approaching a breakup point.

NPK International

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in NPK International are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite fairly uncertain forward-looking signals, NPK International demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Tenaris SA and NPK International

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

The idea behind Tenaris SA ADR and NPK International 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.