Correlation Between Westlake Chemical and Cabot

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

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

Diversification Opportunities for Westlake Chemical and Cabot

0.2

Correlation Coefficient

Westlake Chemical  Cabot

Modest diversification

The 3 months correlation between Westlake and Cabot is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding Westlake Chemical and Cabot in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cabot and Westlake Chemical 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 Westlake Chemical are associated (or correlated) with Cabot. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cabot has no effect on the direction of Westlake Chemical i.e., Westlake Chemical and Cabot go up and down completely randomly.

Pair Corralation between Westlake Chemical and Cabot

Considering the 90-day investment horizon Westlake Chemical is expected to under-perform the Cabot. But the stock apears to be less risky and, when comparing its historical volatility, Westlake Chemical is 1.42 times less risky than Cabot. The stock trades about -0.09 of its potential returns per unit of risk. The Cabot is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  9,612  in Cabot on September 13, 2024 and sell it today you would earn a total of  859.00  from holding Cabot or generate 8.94% return on investment over 90 days.

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

Westlake Chemical  vs.  Cabot

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 latest uncertain performance, the Stock's essential indicators remain persistent and the latest mess on Wall Street may also be a sign of long-standing gains for the company institutional investors.

Cabot

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Cabot are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable fundamental drivers, Cabot is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Westlake Chemical and Cabot

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

The idea behind Westlake Chemical and Cabot 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..