Can any of the company-specific risk be diversified away by investing in both NL Industries and Sino Land 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 Sino Land into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between NL Industries and Sino Land, you can compare the effects of market volatilities on NL Industries and Sino Land 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 Sino Land. Check out your portfolio center. Please also check ongoing floating volatility patterns of NL Industries and Sino Land.
Diversification Opportunities for NL Industries and Sino Land
The 3 months correlation between NL Industries and Sino is 0.42. Overlapping area represents the amount of risk that can be diversified away by holding NL Industries and Sino Land in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sino Land 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 Sino Land. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sino Land has no effect on the direction of NL Industries i.e., NL Industries and Sino Land go up and down completely randomly.
Pair Corralation between NL Industries and Sino Land
Allowing for the 90-day total investment horizon NL Industries is expected to generate 1.34 times more return on investment than Sino Land. However, NL Industries is 1.34 times more volatile than Sino Land. It trades about 0.17 of its potential returns per unit of risk. Sino Land is currently generating about 0.01 per unit of risk. If you would invest 522.00 in NL Industries on March 6, 2024 and sell it today you would earn a total of 224.00 from holding NL Industries or generate 42.91% return on investment over 90 days.
Compared to the overall equity markets, risk-adjusted returns on investments in NL Industries are ranked lower than 13 (%) 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.
Compared to the overall equity markets, risk-adjusted returns on investments in Sino Land are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Sino Land is not utilizing all of its potentials. The recent stock price disturbance, may contribute to mid-run losses for the stockholders.