Correlation Between PacifiCorp and NL Industries
Can any of the company-specific risk be diversified away by investing in both PacifiCorp 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 PacifiCorp and NL Industries into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between PacifiCorp and NL Industries, you can compare the effects of market volatilities on PacifiCorp 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 PacifiCorp with a short position of NL Industries. Check out your portfolio center. Please also check ongoing floating volatility patterns of PacifiCorp and NL Industries.
Diversification Opportunities for PacifiCorp and NL Industries
0.64 | Correlation Coefficient |
Poor diversification
The 3 months correlation between PacifiCorp and NL Industries is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding PacifiCorp and NL Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NL Industries and PacifiCorp 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 PacifiCorp 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 PacifiCorp i.e., PacifiCorp and NL Industries go up and down completely randomly.
Pair Corralation between PacifiCorp and NL Industries
Assuming the 90 days horizon PacifiCorp is expected to generate 3.25 times more return on investment than NL Industries. However, PacifiCorp is 3.25 times more volatile than NL Industries. It trades about 0.07 of its potential returns per unit of risk. NL Industries is currently generating about 0.08 per unit of risk. If you would invest 9,576 in PacifiCorp on September 5, 2024 and sell it today you would earn a total of 3,919 from holding PacifiCorp or generate 40.93% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 99.2% |
| Values | Daily Returns |
PacifiCorp vs. NL Industries
Performance |
| Timeline |
| PacifiCorp |
| NL Industries |
PacifiCorp and NL Industries Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with PacifiCorp and NL Industries
The main advantage of trading using opposite PacifiCorp and NL Industries positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if PacifiCorp 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.| PacifiCorp vs. Sonida Senior Living | PacifiCorp vs. Lindblad Expeditions Holdings | PacifiCorp vs. Cumulus Media Class | PacifiCorp vs. Esperion Therapeutics |
| NL Industries vs. Atos SE | NL Industries vs. Deveron Corp | NL Industries vs. Appen Limited | NL Industries vs. Atos Origin SA |
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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.
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