Correlation Between Ingevity Corp and Innospec

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

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

Diversification Opportunities for Ingevity Corp and Innospec

0.78

Correlation Coefficient

Ingevity Corp  Innospec

Poor diversification

The 3 months correlation between Ingevity and Innospec is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Ingevity Corp and Innospec in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Innospec and Ingevity Corp 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 Ingevity Corp are associated (or correlated) with Innospec. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Innospec has no effect on the direction of Ingevity Corp i.e., Ingevity Corp and Innospec go up and down completely randomly.

Pair Corralation between Ingevity Corp and Innospec

Given the investment horizon of 90 days Ingevity Corp is expected to generate 2.14 times more return on investment than Innospec. However, Ingevity Corp is 2.14 times more volatile than Innospec. It trades about 0.1 of its potential returns per unit of risk. Innospec is currently generating about 0.05 per unit of risk. If you would invest  3,811  in Ingevity Corp on August 31, 2024 and sell it today you would earn a total of  962.00  from holding Ingevity Corp or generate 25.24% return on investment over 90 days.

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

Ingevity Corp  vs.  Innospec

Ingevity Corp

Risk-Adjusted Performance

8 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Ingevity Corp are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively conflicting basic indicators, Ingevity Corp unveiled solid returns over the last few months and may actually be approaching a breakup point.

Innospec

Risk-Adjusted Performance

4 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Innospec are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, Innospec may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with Ingevity Corp and Innospec

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

The idea behind Ingevity Corp and Innospec 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.