Correlation Between NACCO Industries and BP PLC

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

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

Diversification Opportunities for NACCO Industries and BP PLC

-0.5

Correlation Coefficient

NACCO Industries  BP PLC

Very good diversification

The 3 months correlation between NACCO and BP PLC is -0.5. Overlapping area represents the amount of risk that can be diversified away by holding NACCO Industries and BP PLC ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BP PLC ADR and NACCO 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 NACCO Industries are associated (or correlated) with BP PLC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BP PLC ADR has no effect on the direction of NACCO Industries i.e., NACCO Industries and BP PLC go up and down completely randomly.

Pair Corralation between NACCO Industries and BP PLC

Allowing for the 90-day total investment horizon NACCO Industries is expected to generate 2.36 times more return on investment than BP PLC. However, NACCO Industries is 2.36 times more volatile than BP PLC ADR. It trades about 0.08 of its potential returns per unit of risk. BP PLC ADR is currently generating about -0.03 per unit of risk. If you would invest  2,892  in NACCO Industries on March 12, 2024 and sell it today you would earn a total of  369.00  from holding NACCO Industries or generate 12.76% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	98.44%
Values	Daily Returns

NACCO Industries  vs.  BP PLC ADR

NACCO Industries

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in NACCO Industries are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak fundamental indicators, NACCO Industries exhibited solid returns over the last few months and may actually be approaching a breakup point.

BP PLC ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days BP PLC ADR has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable basic indicators, BP PLC is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with NACCO Industries and BP PLC

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

The idea behind NACCO Industries and BP PLC ADR 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.