Correlation Between Valhi and Olin

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

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

Diversification Opportunities for Valhi and Olin

0.53

Correlation Coefficient

Valhi  Olin

Very weak diversification

The 3 months correlation between Valhi and Olin is 0.53. Overlapping area represents the amount of risk that can be diversified away by holding Valhi Inc and Olin Corp. in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Olin and Valhi 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 Valhi Inc are associated (or correlated) with Olin. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Olin has no effect on the direction of Valhi i.e., Valhi and Olin go up and down completely randomly.

Pair Corralation between Valhi and Olin

Considering the 90-day investment horizon Valhi Inc is expected to generate 2.15 times more return on investment than Olin. However, Valhi is 2.15 times more volatile than Olin Corporation. It trades about -0.01 of its potential returns per unit of risk. Olin Corporation is currently generating about -0.07 per unit of risk. If you would invest  2,706  in Valhi Inc on September 14, 2024 and sell it today you would lose (329.00) from holding Valhi Inc or give up 12.16% of portfolio value over 90 days.

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

Valhi Inc  vs.  Olin Corp.

Valhi Inc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Valhi Inc has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong technical indicators, Valhi is not utilizing all of its potentials. The current stock price confusion, may contribute to short-horizon losses for the traders.

Olin

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Olin Corporation has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest inconsistent performance, the Stock's essential indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Pair Trading with Valhi and Olin

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

The idea behind Valhi Inc and Olin Corporation 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.