Correlation Between Applied Industrial and NL Industries
Can any of the company-specific risk be diversified away by investing in both Applied Industrial and NL 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 Applied Industrial and NL Industries into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Applied Industrial Technologies and NL Industries, you can compare the effects of market volatilities on Applied Industrial and NL 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 Applied Industrial with a short position of NL Industries. Check out your portfolio center. Please also check ongoing floating volatility patterns of Applied Industrial and NL Industries.
Diversification Opportunities for Applied Industrial and NL Industries
0.62 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Applied and NL Industries is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding Applied Industrial Technologie and NL Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NL Industries and Applied Industrial 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 Applied Industrial Technologies are associated (or correlated) with NL Industries. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NL Industries has no effect on the direction of Applied Industrial i.e., Applied Industrial and NL Industries go up and down completely randomly.
Pair Corralation between Applied Industrial and NL Industries
Considering the 90-day investment horizon Applied Industrial Technologies is expected to under-perform the NL Industries. But the stock apears to be less risky and, when comparing its historical volatility, Applied Industrial Technologies is 3.26 times less risky than NL Industries. The stock trades about -0.22 of its potential returns per unit of risk. The NL Industries is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest 710.00 in NL Industries on January 25, 2024 and sell it today you would earn a total of 62.00 from holding NL Industries or generate 8.73% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Applied Industrial Technologie vs. NL Industries
Performance |
| Timeline |
| Applied Industrial |
| NL Industries |
Applied Industrial and NL Industries Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Applied Industrial and NL Industries
The main advantage of trading using opposite Applied Industrial and NL Industries positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Applied Industrial position performs unexpectedly, NL Industries 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 NL Industries will offset losses from the drop in NL Industries' long position.| Applied Industrial vs. Core Main | Applied Industrial vs. WW Grainger | Applied Industrial vs. DXP Enterprises | Applied Industrial vs. SiteOne Landscape Supply |
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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.
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