Correlation Between Olin and Valhi
Can any of the company-specific risk be diversified away by investing in both Olin and Valhi 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 Valhi into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Olin Corporation and Valhi Inc, you can compare the effects of market volatilities on Olin and Valhi 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 Valhi. Check out your portfolio center. Please also check ongoing floating volatility patterns of Olin and Valhi.
Diversification Opportunities for Olin and Valhi
Very weak diversification
The 3 months correlation between Olin and Valhi is 0.53. Overlapping area represents the amount of risk that can be diversified away by holding Olin Corp. and Valhi Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Valhi Inc 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 Valhi. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Valhi Inc has no effect on the direction of Olin i.e., Olin and Valhi go up and down completely randomly.
Pair Corralation between Olin and Valhi
Considering the 90-day investment horizon Olin Corporation is expected to generate 0.75 times more return on investment than Valhi. However, Olin Corporation is 1.32 times less risky than Valhi. It trades about -0.22 of its potential returns per unit of risk. Valhi Inc is currently generating about -0.19 per unit of risk. If you would invest 4,269 in Olin Corporation on September 14, 2024 and sell it today you would lose (460.00) from holding Olin Corporation or give up 10.78% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Olin Corp. vs. Valhi Inc
Performance |
| Timeline |
| Olin |
| Valhi Inc |
Olin and Valhi Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Olin and Valhi
The main advantage of trading using opposite Olin and Valhi positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Olin position performs unexpectedly, Valhi 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 Valhi will offset losses from the drop in Valhi's long position.The idea behind Olin Corporation and Valhi Inc 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.| Valhi vs. United States Steel | Valhi vs. Alcoa Corp | Valhi vs. First Majestic Silver | Valhi vs. AngloGold Ashanti plc |
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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.
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