Correlation Between Axalta Coating and Methanex

Can any of the company-specific risk be diversified away by investing in both Axalta Coating and Methanex 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 Axalta Coating and Methanex into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Axalta Coating Systems and Methanex, you can compare the effects of market volatilities on Axalta Coating and Methanex 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 Axalta Coating with a short position of Methanex. Check out your portfolio center. Please also check ongoing floating volatility patterns of Axalta Coating and Methanex.

Diversification Opportunities for Axalta Coating and Methanex

0.38

Correlation Coefficient

Axalta Coating  Methanex

Weak diversification

The 3 months correlation between Axalta and Methanex is 0.38. Overlapping area represents the amount of risk that can be diversified away by holding Axalta Coating Systems and Methanex in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Methanex and Axalta Coating 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 Axalta Coating Systems are associated (or correlated) with Methanex. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Methanex has no effect on the direction of Axalta Coating i.e., Axalta Coating and Methanex go up and down completely randomly.

Pair Corralation between Axalta Coating and Methanex

Given the investment horizon of 90 days Axalta Coating is expected to generate 2.03 times less return on investment than Methanex. But when comparing it to its historical volatility, Axalta Coating Systems is 1.38 times less risky than Methanex. It trades about 0.01 of its potential returns per unit of risk. Methanex is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  4,783  in Methanex on September 26, 2024 and sell it today you would earn a total of  60.00  from holding Methanex or generate 1.25% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Axalta Coating Systems  vs.  Methanex

Axalta Coating Systems

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Axalta Coating Systems has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest uncertain performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Methanex

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Methanex are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite fairly weak basic indicators, Methanex demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Axalta Coating and Methanex

The main advantage of trading using opposite Axalta Coating and Methanex positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Axalta Coating position performs unexpectedly, Methanex 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 Methanex will offset losses from the drop in Methanex's long position.

The idea behind Axalta Coating Systems and Methanex 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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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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.