Correlation Between Sovereign Metals and Westlake Chemical

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

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

Diversification Opportunities for Sovereign Metals and Westlake Chemical

-0.38

Correlation Coefficient

Sovereign Metals  Westlake Chemical

Very good diversification

The 3 months correlation between Sovereign and Westlake is -0.38. Overlapping area represents the amount of risk that can be diversified away by holding Sovereign Metals Limited and Westlake Chemical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Westlake Chemical and Sovereign Metals 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 Sovereign Metals Limited are associated (or correlated) with Westlake Chemical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Westlake Chemical has no effect on the direction of Sovereign Metals i.e., Sovereign Metals and Westlake Chemical go up and down completely randomly.

Pair Corralation between Sovereign Metals and Westlake Chemical

Assuming the 90 days horizon Sovereign Metals Limited is expected to generate 2.5 times more return on investment than Westlake Chemical. However, Sovereign Metals is 2.5 times more volatile than Westlake Chemical. It trades about 0.12 of its potential returns per unit of risk. Westlake Chemical is currently generating about -0.01 per unit of risk. If you would invest  39.00  in Sovereign Metals Limited on September 4, 2024 and sell it today you would earn a total of  10.00  from holding Sovereign Metals Limited or generate 25.64% return on investment over 90 days.

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

Sovereign Metals Limited  vs.  Westlake Chemical

Sovereign Metals

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Sovereign Metals Limited are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Sovereign Metals reported solid returns over the last few months and may actually be approaching a breakup point.

Westlake Chemical

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Westlake Chemical has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Westlake Chemical is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Sovereign Metals and Westlake Chemical

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

The idea behind Sovereign Metals Limited and Westlake Chemical 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.