Correlation Between NL Industries and Stepan
Can any of the company-specific risk be diversified away by investing in both NL Industries and Stepan 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 Stepan into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between NL Industries and Stepan Company, you can compare the effects of market volatilities on NL Industries and Stepan 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 Stepan. Check out your portfolio center. Please also check ongoing floating volatility patterns of NL Industries and Stepan.
Diversification Opportunities for NL Industries and Stepan
-0.14 | Correlation Coefficient |
Good diversification
The 3 months correlation between NL Industries and Stepan is -0.14. Overlapping area represents the amount of risk that can be diversified away by holding NL Industries and Stepan Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Stepan Company 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 Stepan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Stepan Company has no effect on the direction of NL Industries i.e., NL Industries and Stepan go up and down completely randomly.
Pair Corralation between NL Industries and Stepan
Allowing for the 90-day total investment horizon NL Industries is expected to generate 1.74 times more return on investment than Stepan. However, NL Industries is 1.74 times more volatile than Stepan Company. It trades about 0.09 of its potential returns per unit of risk. Stepan Company is currently generating about -0.09 per unit of risk. If you would invest 683.00 in NL Industries on September 22, 2024 and sell it today you would earn a total of 113.00 from holding NL Industries or generate 16.54% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Against |
Strength | Insignificant |
Accuracy | 100.0% |
Values | Daily Returns |
NL Industries vs. Stepan Company
Performance |
Timeline |
NL Industries |
Stepan Company |
NL Industries and Stepan Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with NL Industries and Stepan
The main advantage of trading using opposite NL Industries and Stepan positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if NL Industries position performs unexpectedly, Stepan 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 Stepan will offset losses from the drop in Stepan's long position.NL Industries vs. Brinks Company | ||
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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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.
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