Correlation Between North American and LyondellBasell Industries

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

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

Diversification Opportunities for North American and LyondellBasell Industries

-0.67

Correlation Coefficient

North American  LyondellBasell Industries

Excellent diversification

The 3 months correlation between North and LyondellBasell is -0.67. Overlapping area represents the amount of risk that can be diversified away by holding North American Construction and LyondellBasell Industries NV in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LyondellBasell Industries and North American 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 North American Construction are associated (or correlated) with LyondellBasell Industries. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LyondellBasell Industries has no effect on the direction of North American i.e., North American and LyondellBasell Industries go up and down completely randomly.

Pair Corralation between North American and LyondellBasell Industries

Assuming the 90 days horizon North American Construction is expected to generate 1.1 times more return on investment than LyondellBasell Industries. However, North American is 1.1 times more volatile than LyondellBasell Industries NV. It trades about 0.08 of its potential returns per unit of risk. LyondellBasell Industries NV is currently generating about -0.15 per unit of risk. If you would invest  1,868  in North American Construction on September 13, 2024 and sell it today you would earn a total of  62.00  from holding North American Construction or generate 3.32% return on investment over 90 days.

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

North American Construction  vs.  LyondellBasell Industries NV

North American Const

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in North American Construction are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, North American reported solid returns over the last few months and may actually be approaching a breakup point.

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 latest uncertain performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with North American and LyondellBasell Industries

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

The idea behind North American Construction and LyondellBasell Industries NV 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.