Correlation Between NACCO Industries and Nucor Corp

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

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

Diversification Opportunities for NACCO Industries and Nucor Corp

-0.19

Correlation Coefficient

NACCO Industries  Nucor Corp

Good diversification

The 3 months correlation between NACCO and Nucor is -0.19. Overlapping area represents the amount of risk that can be diversified away by holding NACCO Industries and Nucor Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nucor Corp 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 Nucor Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nucor Corp has no effect on the direction of NACCO Industries i.e., NACCO Industries and Nucor Corp go up and down completely randomly.

Pair Corralation between NACCO Industries and Nucor Corp

Allowing for the 90-day total investment horizon NACCO Industries is expected to generate 1.67 times more return on investment than Nucor Corp. However, NACCO Industries is 1.67 times more volatile than Nucor Corp. It trades about 0.19 of its potential returns per unit of risk. Nucor Corp is currently generating about -0.29 per unit of risk. If you would invest  2,899  in NACCO Industries on February 5, 2024 and sell it today you would earn a total of  423.00  from holding NACCO Industries or generate 14.59% return on investment over 90 days.

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

NACCO Industries  vs.  Nucor Corp

NACCO Industries

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days NACCO Industries has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Nucor Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Nucor Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, Nucor Corp is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with NACCO Industries and Nucor Corp

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

The idea behind NACCO Industries and Nucor Corp 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.