Correlation Between Olin and Akzo Nobel
Can any of the company-specific risk be diversified away by investing in both Olin and Akzo Nobel 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 Olin and Akzo Nobel into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Olin Corporation and Akzo Nobel NV, you can compare the effects of market volatilities on Olin and Akzo Nobel 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 Olin with a short position of Akzo Nobel. Check out your portfolio center. Please also check ongoing floating volatility patterns of Olin and Akzo Nobel.
Diversification Opportunities for Olin and Akzo Nobel
0.63 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Olin and Akzo is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Olin Corp. and Akzo Nobel NV in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Akzo Nobel NV and Olin 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 Olin Corporation are associated (or correlated) with Akzo Nobel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Akzo Nobel NV has no effect on the direction of Olin i.e., Olin and Akzo Nobel go up and down completely randomly.
Pair Corralation between Olin and Akzo Nobel
Considering the 90-day investment horizon Olin Corporation is expected to generate 1.03 times more return on investment than Akzo Nobel. However, Olin is 1.03 times more volatile than Akzo Nobel NV. It trades about -0.05 of its potential returns per unit of risk. Akzo Nobel NV is currently generating about -0.08 per unit of risk. If you would invest 5,165 in Olin Corporation on September 12, 2024 and sell it today you would lose (1,351) from holding Olin Corporation or give up 26.16% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 71.77% |
| Values | Daily Returns |
Olin Corp. vs. Akzo Nobel NV
Performance |
| Timeline |
| Olin |
| Akzo Nobel NV |
Olin and Akzo Nobel Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Olin and Akzo Nobel
The main advantage of trading using opposite Olin and Akzo Nobel positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Olin position performs unexpectedly, Akzo Nobel 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 Akzo Nobel will offset losses from the drop in Akzo Nobel's long position.The idea behind Olin Corporation and Akzo Nobel NV 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.| Akzo Nobel vs. Avoca LLC | Akzo Nobel vs. AGC Inc ADR | Akzo Nobel vs. Arkema SA ADR | Akzo Nobel vs. AirBoss of America |
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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.
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