Correlation Between LyondellBasell Industries and Carbios
Can any of the company-specific risk be diversified away by investing in both LyondellBasell Industries and Carbios 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 LyondellBasell Industries and Carbios into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between LyondellBasell Industries NV and Carbios, you can compare the effects of market volatilities on LyondellBasell Industries and Carbios 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 LyondellBasell Industries with a short position of Carbios. Check out your portfolio center. Please also check ongoing floating volatility patterns of LyondellBasell Industries and Carbios.
Diversification Opportunities for LyondellBasell Industries and Carbios
0.74 | Correlation Coefficient |
Poor diversification
The 3 months correlation between LyondellBasell and Carbios is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding LyondellBasell Industries NV and Carbios in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Carbios and LyondellBasell 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 LyondellBasell Industries NV are associated (or correlated) with Carbios. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Carbios has no effect on the direction of LyondellBasell Industries i.e., LyondellBasell Industries and Carbios go up and down completely randomly.
Pair Corralation between LyondellBasell Industries and Carbios
Assuming the 90 days horizon LyondellBasell Industries NV is expected to generate 0.43 times more return on investment than Carbios. However, LyondellBasell Industries NV is 2.31 times less risky than Carbios. It trades about 0.02 of its potential returns per unit of risk. Carbios is currently generating about -0.09 per unit of risk. If you would invest 6,802 in LyondellBasell Industries NV on September 5, 2024 and sell it today you would earn a total of 948.00 from holding LyondellBasell Industries NV or generate 13.94% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
LyondellBasell Industries NV vs. Carbios
Performance |
| Timeline |
| LyondellBasell Industries |
| Carbios |
LyondellBasell Industries and Carbios Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with LyondellBasell Industries and Carbios
The main advantage of trading using opposite LyondellBasell Industries and Carbios positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if LyondellBasell Industries position performs unexpectedly, Carbios 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 Carbios will offset losses from the drop in Carbios' long position.The idea behind LyondellBasell Industries NV and Carbios 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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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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.
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