Correlation Between NL Industries and Diageo PLC
Can any of the company-specific risk be diversified away by investing in both NL Industries and Diageo PLC 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 NL Industries and Diageo PLC into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between NL Industries and Diageo PLC ADR, you can compare the effects of market volatilities on NL Industries and Diageo PLC 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 NL Industries with a short position of Diageo PLC. Check out your portfolio center. Please also check ongoing floating volatility patterns of NL Industries and Diageo PLC.
Diversification Opportunities for NL Industries and Diageo PLC
-0.31 | Correlation Coefficient |
Very good diversification
The 3 months correlation between NL Industries and Diageo is -0.31. Overlapping area represents the amount of risk that can be diversified away by holding NL Industries and Diageo PLC ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Diageo PLC ADR and NL Industries 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 NL Industries are associated (or correlated) with Diageo PLC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Diageo PLC ADR has no effect on the direction of NL Industries i.e., NL Industries and Diageo PLC go up and down completely randomly.
Pair Corralation between NL Industries and Diageo PLC
Allowing for the 90-day total investment horizon NL Industries is expected to generate 1.99 times more return on investment than Diageo PLC. However, NL Industries is 1.99 times more volatile than Diageo PLC ADR. It trades about 0.15 of its potential returns per unit of risk. Diageo PLC ADR is currently generating about -0.08 per unit of risk. If you would invest 631.00 in NL Industries on September 4, 2024 and sell it today you would earn a total of 180.00 from holding NL Industries or generate 28.53% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
NL Industries vs. Diageo PLC ADR
Performance |
| Timeline |
| NL Industries |
| Diageo PLC ADR |
NL Industries and Diageo PLC Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with NL Industries and Diageo PLC
The main advantage of trading using opposite NL Industries and Diageo PLC positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if NL Industries position performs unexpectedly, Diageo PLC 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 Diageo PLC will offset losses from the drop in Diageo PLC's long position.| NL Industries vs. Atos SE | NL Industries vs. Deveron Corp | NL Industries vs. Appen Limited | NL Industries vs. Atos Origin SA |
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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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.
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