Correlation Between REX American and Element Solutions

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

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

Diversification Opportunities for REX American and Element Solutions

0.02

Correlation Coefficient

REX American  Element Solutions

Significant diversification

The 3 months correlation between REX and Element is 0.02. Overlapping area represents the amount of risk that can be diversified away by holding REX American Resources and Element Solutions in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Element Solutions and REX 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 REX American Resources 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 REX American i.e., REX American and Element Solutions go up and down completely randomly.

Pair Corralation between REX American and Element Solutions

Considering the 90-day investment horizon REX American is expected to generate 1.01 times less return on investment than Element Solutions. In addition to that, REX American is 1.69 times more volatile than Element Solutions. It trades about 0.03 of its total potential returns per unit of risk. Element Solutions is currently generating about 0.06 per unit of volatility. If you would invest  1,782  in Element Solutions on September 13, 2024 and sell it today you would earn a total of  1,000.00  from holding Element Solutions or generate 56.12% return on investment over 90 days.

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

REX American Resources  vs.  Element Solutions

REX American Resources

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days REX American Resources has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong technical and fundamental indicators, REX American is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Element Solutions

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Element Solutions are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite fairly unsteady basic indicators, Element Solutions may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with REX American and Element Solutions

The main advantage of trading using opposite REX American and Element Solutions positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if REX American 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 REX American Resources 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.