Correlation Between NL Industries and Stantec

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

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

Diversification Opportunities for NL Industries and Stantec

0.84

Correlation Coefficient

NL Industries  Stantec

Very poor diversification

The 3 months correlation between NL Industries and Stantec is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding NL Industries and Stantec in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Stantec 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 Stantec. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Stantec has no effect on the direction of NL Industries i.e., NL Industries and Stantec go up and down completely randomly.

Pair Corralation between NL Industries and Stantec

Allowing for the 90-day total investment horizon NL Industries is expected to generate 2.27 times more return on investment than Stantec. However, NL Industries is 2.27 times more volatile than Stantec. It trades about 0.13 of its potential returns per unit of risk. Stantec is currently generating about 0.12 per unit of risk. If you would invest  668.00  in NL Industries on September 13, 2024 and sell it today you would earn a total of  163.00  from holding NL Industries or generate 24.4% return on investment over 90 days.

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

NL Industries  vs.  Stantec

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 weak essential indicators, NL Industries disclosed solid returns over the last few months and may actually be approaching a breakup point.

Stantec

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Stantec are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of very unsteady basic indicators, Stantec may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with NL Industries and Stantec

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

The idea behind NL Industries and Stantec 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.