Correlation Between Pool and Origin Materials
Can any of the company-specific risk be diversified away by investing in both Pool and Origin Materials 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 Pool and Origin Materials into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Pool Corporation and Origin Materials, you can compare the effects of market volatilities on Pool and Origin Materials 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 Pool with a short position of Origin Materials. Check out your portfolio center. Please also check ongoing floating volatility patterns of Pool and Origin Materials.
Diversification Opportunities for Pool and Origin Materials
-0.05 | Correlation Coefficient |
Good diversification
The 3 months correlation between Pool and Origin is -0.05. Overlapping area represents the amount of risk that can be diversified away by holding Pool Corp. and Origin Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Origin Materials and Pool 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 Pool Corporation are associated (or correlated) with Origin Materials. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Origin Materials has no effect on the direction of Pool i.e., Pool and Origin Materials go up and down completely randomly.
Pair Corralation between Pool and Origin Materials
Given the investment horizon of 90 days Pool is expected to generate 6.7 times less return on investment than Origin Materials. But when comparing it to its historical volatility, Pool Corporation is 3.74 times less risky than Origin Materials. It trades about 0.06 of its potential returns per unit of risk. Origin Materials is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest 80.00 in Origin Materials on September 4, 2024 and sell it today you would earn a total of 44.00 from holding Origin Materials or generate 55.0% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 98.82% |
| Values | Daily Returns |
Pool Corp. vs. Origin Materials
Performance |
| Timeline |
| Pool |
| Origin Materials |
Pool and Origin Materials Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Pool and Origin Materials
The main advantage of trading using opposite Pool and Origin Materials positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Pool position performs unexpectedly, Origin Materials 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 Origin Materials will offset losses from the drop in Origin Materials' long position.The idea behind Pool Corporation and Origin Materials 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.| Origin Materials vs. Tronox Holdings PLC | Origin Materials vs. Valhi Inc | Origin Materials vs. Lsb Industries | Origin Materials vs. Huntsman |
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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .
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