Correlation Between LyondellBasell Industries and TRI CHEMICAL

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

By analyzing existing cross correlation between LyondellBasell Industries NV and TRI CHEMICAL LABORATINC, you can compare the effects of market volatilities on LyondellBasell Industries and TRI CHEMICAL 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 LyondellBasell Industries with a short position of TRI CHEMICAL. Check out your portfolio center. Please also check ongoing floating volatility patterns of LyondellBasell Industries and TRI CHEMICAL.

Diversification Opportunities for LyondellBasell Industries and TRI CHEMICAL

0.8

Correlation Coefficient

LyondellBasell Industries  TRI CHEMICAL

Very poor diversification

The 3 months correlation between LyondellBasell and TRI is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding LyondellBasell Industries NV and TRI CHEMICAL LABORATINC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TRI CHEMICAL LABORATINC and LyondellBasell Industries 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 LyondellBasell Industries NV are associated (or correlated) with TRI CHEMICAL. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of TRI CHEMICAL LABORATINC has no effect on the direction of LyondellBasell Industries i.e., LyondellBasell Industries and TRI CHEMICAL go up and down completely randomly.

Pair Corralation between LyondellBasell Industries and TRI CHEMICAL

Assuming the 90 days horizon LyondellBasell Industries NV is expected to generate 0.62 times more return on investment than TRI CHEMICAL. However, LyondellBasell Industries NV is 1.6 times less risky than TRI CHEMICAL. It trades about -0.13 of its potential returns per unit of risk. TRI CHEMICAL LABORATINC is currently generating about -0.13 per unit of risk. If you would invest  8,352  in LyondellBasell Industries NV on September 25, 2024 and sell it today you would lose (1,202) from holding LyondellBasell Industries NV or give up 14.39% of portfolio value over 90 days.

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

LyondellBasell Industries NV  vs.  TRI CHEMICAL LABORATINC

LyondellBasell Industries

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days LyondellBasell Industries NV has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

TRI CHEMICAL LABORATINC

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days TRI CHEMICAL LABORATINC has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with LyondellBasell Industries and TRI CHEMICAL

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

The idea behind LyondellBasell Industries NV and TRI CHEMICAL LABORATINC 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.