Correlation Between NL Industries and Lucas GC

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

By analyzing existing cross correlation between NL Industries and Lucas GC Limited, you can compare the effects of market volatilities on NL Industries and Lucas GC 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 Lucas GC. Check out your portfolio center. Please also check ongoing floating volatility patterns of NL Industries and Lucas GC.

Diversification Opportunities for NL Industries and Lucas GC

-0.52

Correlation Coefficient

NL Industries  Lucas GC

Excellent diversification

The 3 months correlation between NL Industries and Lucas is -0.52. Overlapping area represents the amount of risk that can be diversified away by holding NL Industries and Lucas GC Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lucas GC Limited 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 Lucas GC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lucas GC Limited has no effect on the direction of NL Industries i.e., NL Industries and Lucas GC go up and down completely randomly.

Pair Corralation between NL Industries and Lucas GC

Allowing for the 90-day total investment horizon NL Industries is expected to generate 0.37 times more return on investment than Lucas GC. However, NL Industries is 2.71 times less risky than Lucas GC. It trades about 0.15 of its potential returns per unit of risk. Lucas GC Limited is currently generating about -0.14 per unit of risk. If you would invest  634.00  in NL Industries on September 3, 2024 and sell it today you would earn a total of  177.00  from holding NL Industries or generate 27.92% return on investment over 90 days.

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

NL Industries  vs.  Lucas GC Limited

NL Industries

Risk-Adjusted Performance

11 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in NL Industries are ranked lower than 11 (%) 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.

Lucas GC Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Lucas GC Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite uncertain performance in the last few months, the Stock's fundamental indicators remain quite persistent which may send shares a bit higher in January 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Pair Trading with NL Industries and Lucas GC

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

The idea behind NL Industries and Lucas GC Limited 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.