Correlation Between GENERAL and NL Industries

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

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

Diversification Opportunities for GENERAL and NL Industries

0.02

Correlation Coefficient

GENERAL  NL Industries

Significant diversification

The 3 months correlation between GENERAL and NL Industries is 0.02. Overlapping area represents the amount of risk that can be diversified away by holding GENERAL ELEC CAP and NL Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NL Industries and GENERAL 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 GENERAL ELEC CAP 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 GENERAL i.e., GENERAL and NL Industries go up and down completely randomly.

Pair Corralation between GENERAL and NL Industries

Assuming the 90 days trading horizon GENERAL ELEC CAP is expected to generate 0.43 times more return on investment than NL Industries. However, GENERAL ELEC CAP is 2.33 times less risky than NL Industries. It trades about 0.06 of its potential returns per unit of risk. NL Industries is currently generating about 0.02 per unit of risk. If you would invest  9,170  in GENERAL ELEC CAP on December 25, 2024 and sell it today you would earn a total of  218.00  from holding GENERAL ELEC CAP or generate 2.38% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	59.32%
Values	Daily Returns

GENERAL ELEC CAP  vs.  NL Industries

GENERAL ELEC CAP

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in GENERAL ELEC CAP are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, GENERAL is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

NL Industries

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in NL Industries are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. 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 GENERAL and NL Industries

The main advantage of trading using opposite GENERAL and NL Industries positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GENERAL 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 GENERAL ELEC CAP 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.