Correlation Between Innospec and Element Solutions
Can any of the company-specific risk be diversified away by investing in both Innospec and Element Solutions 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 Innospec and Element Solutions into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Innospec and Element Solutions, you can compare the effects of market volatilities on Innospec and Element Solutions 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 Innospec with a short position of Element Solutions. Check out your portfolio center. Please also check ongoing floating volatility patterns of Innospec and Element Solutions.
Diversification Opportunities for Innospec and Element Solutions
0.7 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Innospec and Element is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Innospec and Element Solutions in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Element Solutions and Innospec 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 Innospec are associated (or correlated) with Element Solutions. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Element Solutions has no effect on the direction of Innospec i.e., Innospec and Element Solutions go up and down completely randomly.
Pair Corralation between Innospec and Element Solutions
Given the investment horizon of 90 days Innospec is expected to generate 2.57 times less return on investment than Element Solutions. But when comparing it to its historical volatility, Innospec is 1.07 times less risky than Element Solutions. It trades about 0.02 of its potential returns per unit of risk. Element Solutions is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest 1,867 in Element Solutions on August 27, 2024 and sell it today you would earn a total of 1,037 from holding Element Solutions or generate 55.54% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Innospec vs. Element Solutions
Performance |
| Timeline |
| Innospec |
| Element Solutions |
Innospec and Element Solutions Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Innospec and Element Solutions
The main advantage of trading using opposite Innospec and Element Solutions positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Innospec position performs unexpectedly, Element Solutions 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 Element Solutions will offset losses from the drop in Element Solutions' long position.The idea behind Innospec and Element Solutions 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.| Element Solutions vs. Oil Dri | Element Solutions vs. H B Fuller | Element Solutions vs. Northern Technologies | Element Solutions vs. Cabot |
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 Funds Screener module to find actively-traded funds from around the world traded on over 30 global exchanges.
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