Correlation Between NAPCO Security and NL Industries

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

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

Diversification Opportunities for NAPCO Security and NL Industries

-0.16

Correlation Coefficient

NAPCO Security  NL Industries

Good diversification

The 3 months correlation between NAPCO and NL Industries is -0.16. Overlapping area represents the amount of risk that can be diversified away by holding NAPCO Security Technologies and NL Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NL Industries and NAPCO Security 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 NAPCO Security 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 NAPCO Security i.e., NAPCO Security and NL Industries go up and down completely randomly.

Pair Corralation between NAPCO Security and NL Industries

Given the investment horizon of 90 days NAPCO Security is expected to generate 2.08 times less return on investment than NL Industries. In addition to that, NAPCO Security is 1.04 times more volatile than NL Industries. It trades about 0.11 of its total potential returns per unit of risk. NL Industries is currently generating about 0.24 per unit of volatility. If you would invest  510.00  in NL Industries on January 24, 2024 and sell it today you would earn a total of  257.00  from holding NL Industries or generate 50.39% return on investment over 90 days.

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

NAPCO Security Technologies  vs.  NL Industries

NAPCO Security Techn

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in NAPCO Security Technologies are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain basic indicators, NAPCO Security exhibited solid returns over the last few months and may actually be approaching a breakup point.

NL Industries

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in NL Industries are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Despite quite unsteady essential indicators, NL Industries disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with NAPCO Security and NL Industries

The main advantage of trading using opposite NAPCO Security and NL Industries positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if NAPCO Security 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.

The idea behind NAPCO Security Technologies and NL Industries 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.