Correlation Between NACCO Industries and Southern Copper

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

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

Diversification Opportunities for NACCO Industries and Southern Copper

-0.84

Correlation Coefficient

NACCO Industries  Southern Copper

Pay attention - limited upside

The 3 months correlation between NACCO and Southern is -0.84. Overlapping area represents the amount of risk that can be diversified away by holding NACCO Industries and Southern Copper in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Southern Copper 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 Southern Copper. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Southern Copper has no effect on the direction of NACCO Industries i.e., NACCO Industries and Southern Copper go up and down completely randomly.

Pair Corralation between NACCO Industries and Southern Copper

Allowing for the 90-day total investment horizon NACCO Industries is expected to under-perform the Southern Copper. In addition to that, NACCO Industries is 1.02 times more volatile than Southern Copper. It trades about -0.03 of its total potential returns per unit of risk. Southern Copper is currently generating about 0.08 per unit of volatility. If you would invest  7,112  in Southern Copper on January 29, 2024 and sell it today you would earn a total of  4,582  from holding Southern Copper or generate 64.43% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Significant
Accuracy	99.68%
Values	Daily Returns

NACCO Industries  vs.  Southern Copper

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 weak performance in the last few months, the Stock's fundamental indicators remain rather sound which may send shares a bit higher in May 2024. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Southern Copper

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Southern Copper are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating fundamental indicators, Southern Copper displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with NACCO Industries and Southern Copper

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

The idea behind NACCO Industries and Southern Copper 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.

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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.