Can any of the company-specific risk be diversified away by investing in both Adams Resources 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 Adams Resources and NACCO Industries into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Adams Resources Energy and NACCO Industries, you can compare the effects of market volatilities on Adams Resources 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 Adams Resources with a short position of NACCO Industries. Check out your portfolio center. Please also check ongoing floating volatility patterns of Adams Resources and NACCO Industries.
Diversification Opportunities for Adams Resources and NACCO Industries
The 3 months correlation between Adams and NACCO is -0.11. Overlapping area represents the amount of risk that can be diversified away by holding Adams Resources Energy and NACCO Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NACCO Industries and Adams Resources 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 Adams Resources 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 Adams Resources i.e., Adams Resources and NACCO Industries go up and down completely randomly.
Pair Corralation between Adams Resources and NACCO Industries
Allowing for the 90-day total investment horizon Adams Resources Energy is expected to generate 0.85 times more return on investment than NACCO Industries. However, Adams Resources Energy is 1.17 times less risky than NACCO Industries. It trades about 0.0 of its potential returns per unit of risk. NACCO Industries is currently generating about -0.01 per unit of risk. If you would invest 3,236 in Adams Resources Energy on March 6, 2024 and sell it today you would lose (551.00) from holding Adams Resources Energy or give up 17.03% of portfolio value over 90 days.
Compared to the overall equity markets, risk-adjusted returns on investments in Adams Resources Energy are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound technical and fundamental indicators, Adams Resources is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.
Over the last 90 days NACCO Industries has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound fundamental indicators, NACCO Industries is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.