Correlation Between NL Industries and Dios Exploration

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

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

Diversification Opportunities for NL Industries and Dios Exploration

-0.18

Correlation Coefficient

NL Industries  Dios Exploration

Good diversification

The 3 months correlation between NL Industries and Dios is -0.18. Overlapping area represents the amount of risk that can be diversified away by holding NL Industries and Dios Exploration in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dios Exploration 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 Dios Exploration. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dios Exploration has no effect on the direction of NL Industries i.e., NL Industries and Dios Exploration go up and down completely randomly.

Pair Corralation between NL Industries and Dios Exploration

Allowing for the 90-day total investment horizon NL Industries is expected to under-perform the Dios Exploration. But the stock apears to be less risky and, when comparing its historical volatility, NL Industries is 2.07 times less risky than Dios Exploration. The stock trades about -0.04 of its potential returns per unit of risk. The Dios Exploration is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  4.00  in Dios Exploration on February 24, 2024 and sell it today you would earn a total of  0.00  from holding Dios Exploration or generate 0.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.45%
Values	Daily Returns

NL Industries  vs.  Dios Exploration

NL Industries

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in NL Industries are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite quite unfluctuating essential indicators, NL Industries disclosed solid returns over the last few months and may actually be approaching a breakup point.

Dios Exploration

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Dios Exploration are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Dios Exploration may actually be approaching a critical reversion point that can send shares even higher in June 2024.

Pair Trading with NL Industries and Dios Exploration

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

The idea behind NL Industries and Dios Exploration 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.