Correlation Between Innospec and Ecovyst

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

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

Diversification Opportunities for Innospec and Ecovyst

0.75

Correlation Coefficient

Innospec  Ecovyst

Poor diversification

The 3 months correlation between Innospec and Ecovyst is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Innospec and Ecovyst in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ecovyst and Innospec 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 Innospec are associated (or correlated) with Ecovyst. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ecovyst has no effect on the direction of Innospec i.e., Innospec and Ecovyst go up and down completely randomly.

Pair Corralation between Innospec and Ecovyst

Given the investment horizon of 90 days Innospec is expected to generate 2.85 times less return on investment than Ecovyst. But when comparing it to its historical volatility, Innospec is 1.25 times less risky than Ecovyst. It trades about 0.06 of its potential returns per unit of risk. Ecovyst is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  685.00  in Ecovyst on August 30, 2024 and sell it today you would earn a total of  110.00  from holding Ecovyst or generate 16.06% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	97.73%
Values	Daily Returns

Innospec  vs.  Ecovyst

Innospec

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Innospec are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable basic indicators, Innospec is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail investors.

Ecovyst

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Ecovyst are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady basic indicators, Ecovyst may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with Innospec and Ecovyst

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

The idea behind Innospec and Ecovyst 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.