Correlation Between Hallador Energy and NACCO Industries

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

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

Diversification Opportunities for Hallador Energy and NACCO Industries

0.74

Correlation Coefficient

Hallador Energy  NACCO Industries

Poor diversification

The 3 months correlation between Hallador and NACCO is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Hallador Energy and NACCO Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NACCO Industries and Hallador Energy 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 Hallador Energy are associated (or correlated) with NACCO Industries. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NACCO Industries has no effect on the direction of Hallador Energy i.e., Hallador Energy and NACCO Industries go up and down completely randomly.

Pair Corralation between Hallador Energy and NACCO Industries

Given the investment horizon of 90 days Hallador Energy is expected to generate 2.12 times more return on investment than NACCO Industries. However, Hallador Energy is 2.12 times more volatile than NACCO Industries. It trades about 0.22 of its potential returns per unit of risk. NACCO Industries is currently generating about 0.1 per unit of risk. If you would invest  639.00  in Hallador Energy on September 13, 2024 and sell it today you would earn a total of  624.00  from holding Hallador Energy or generate 97.65% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

Hallador Energy  vs.  NACCO Industries

Hallador Energy

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Hallador Energy are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, Hallador Energy reported solid returns over the last few months and may actually be approaching a breakup point.

NACCO Industries

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in NACCO Industries are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak fundamental indicators, NACCO Industries exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Hallador Energy and NACCO Industries

The main advantage of trading using opposite Hallador Energy and NACCO Industries positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Hallador Energy position performs unexpectedly, NACCO 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 NACCO Industries will offset losses from the drop in NACCO Industries' long position.

The idea behind Hallador Energy and NACCO 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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.