Correlation Between ADT and NL Industries
Can any of the company-specific risk be diversified away by investing in both ADT 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 ADT and NL Industries into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between ADT Inc and NL Industries, you can compare the effects of market volatilities on ADT 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 ADT with a short position of NL Industries. Check out your portfolio center. Please also check ongoing floating volatility patterns of ADT and NL Industries.
Diversification Opportunities for ADT and NL Industries
0.3 | Correlation Coefficient |
Weak diversification
The 3 months correlation between ADT and NL Industries is 0.3. Overlapping area represents the amount of risk that can be diversified away by holding ADT Inc and NL Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NL Industries and ADT 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 ADT Inc 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 ADT i.e., ADT and NL Industries go up and down completely randomly.
Pair Corralation between ADT and NL Industries
Considering the 90-day investment horizon ADT is expected to generate 2.13 times less return on investment than NL Industries. But when comparing it to its historical volatility, ADT Inc is 3.15 times less risky than NL Industries. It trades about 0.09 of its potential returns per unit of risk. NL Industries is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest 782.00 in NL Industries on August 27, 2024 and sell it today you would earn a total of 29.00 from holding NL Industries or generate 3.71% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
ADT Inc vs. NL Industries
Performance |
| Timeline |
| ADT Inc |
| NL Industries |
ADT and NL Industries Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with ADT and NL Industries
The main advantage of trading using opposite ADT and NL Industries positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if ADT 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 ADT Inc 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.| NL Industries vs. Park Electrochemical | NL Industries vs. Innovative Solutions and | NL Industries vs. Curtiss Wright | NL Industries vs. National Presto Industries |
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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.
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