Correlation Between BOSTON and NL Industries

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Can any of the company-specific risk be diversified away by investing in both BOSTON 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 BOSTON and NL Industries into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between BOSTON PPTYS LTD and NL Industries, you can compare the effects of market volatilities on BOSTON 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 BOSTON with a short position of NL Industries. Check out your portfolio center. Please also check ongoing floating volatility patterns of BOSTON and NL Industries.

Diversification Opportunities for BOSTON and NL Industries

-0.41
  Correlation Coefficient

Very good diversification

The 3 months correlation between BOSTON and NL Industries is -0.41. Overlapping area represents the amount of risk that can be diversified away by holding BOSTON PPTYS LTD and NL Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NL Industries and BOSTON 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 BOSTON PPTYS LTD 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 BOSTON i.e., BOSTON and NL Industries go up and down completely randomly.

Pair Corralation between BOSTON and NL Industries

Assuming the 90 days trading horizon BOSTON is expected to generate 18.35 times less return on investment than NL Industries. But when comparing it to its historical volatility, BOSTON PPTYS LTD is 4.66 times less risky than NL Industries. It trades about 0.01 of its potential returns per unit of risk. NL Industries is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  547.00  in NL Industries on September 14, 2024 and sell it today you would earn a total of  333.00  from holding NL Industries or generate 60.88% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthVery Weak
Accuracy99.8%
ValuesDaily Returns

BOSTON PPTYS LTD  vs.  NL Industries

 Performance 
       Timeline  
BOSTON PPTYS LTD 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days BOSTON PPTYS LTD has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, BOSTON is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the investors.
NL Industries 

Risk-Adjusted Performance

6 of 100

 
Weak
 
Strong
Modest
Compared to the overall equity markets, risk-adjusted returns on investments in NL Industries are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite quite weak essential indicators, NL Industries disclosed solid returns over the last few months and may actually be approaching a breakup point.

BOSTON and NL Industries Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with BOSTON and NL Industries

The main advantage of trading using opposite BOSTON and NL Industries positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BOSTON 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.
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The idea behind BOSTON PPTYS LTD 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.
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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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.

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