Correlation Between Cabot and Element Solutions

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

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

Diversification Opportunities for Cabot and Element Solutions

0.41

Correlation Coefficient

Cabot  Element Solutions

Very weak diversification

The 3 months correlation between Cabot and Element is 0.41. Overlapping area represents the amount of risk that can be diversified away by holding Cabot and Element Solutions in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Element Solutions and Cabot 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 Cabot 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 Cabot i.e., Cabot and Element Solutions go up and down completely randomly.

Pair Corralation between Cabot and Element Solutions

Considering the 90-day investment horizon Cabot is expected to generate 1.1 times more return on investment than Element Solutions. However, Cabot is 1.1 times more volatile than Element Solutions. It trades about 0.06 of its potential returns per unit of risk. Element Solutions is currently generating about 0.06 per unit of risk. If you would invest  6,977  in Cabot on September 4, 2024 and sell it today you would earn a total of  4,265  from holding Cabot or generate 61.13% return on investment over 90 days.

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

Cabot  vs.  Element Solutions

Cabot

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Cabot are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak fundamental drivers, Cabot may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Element Solutions

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Element Solutions are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite fairly weak basic indicators, Element Solutions may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Cabot and Element Solutions

The main advantage of trading using opposite Cabot and Element Solutions positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Cabot 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 Cabot 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.

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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 Portfolio Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.