Correlation Between Brinks and NL Industries

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

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

Diversification Opportunities for Brinks and NL Industries

-0.41

Correlation Coefficient

Brinks  NL Industries

Very good diversification

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

Pair Corralation between Brinks and NL Industries

Considering the 90-day investment horizon Brinks Company is expected to under-perform the NL Industries. But the stock apears to be less risky and, when comparing its historical volatility, Brinks Company is 1.92 times less risky than NL Industries. The stock trades about -0.02 of its potential returns per unit of risk. The NL Industries is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  677.00  in NL Industries on September 1, 2024 and sell it today you would earn a total of  118.00  from holding NL Industries or generate 17.43% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Brinks Company  vs.  NL Industries

Brinks Company

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Brinks Company has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest fragile performance, the Stock's fundamental indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

NL Industries

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in NL Industries are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite quite fragile essential indicators, NL Industries disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Brinks and NL Industries

The main advantage of trading using opposite Brinks and NL Industries positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Brinks 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 Brinks Company 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.