Correlation Between Cabot and Air Products

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

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

Diversification Opportunities for Cabot and Air Products

0.73

Correlation Coefficient

Cabot  Air Products

Poor diversification

The 3 months correlation between Cabot and Air is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Cabot and Air Products and in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Air Products and Cabot 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 Cabot are associated (or correlated) with Air Products. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Air Products has no effect on the direction of Cabot i.e., Cabot and Air Products go up and down completely randomly.

Pair Corralation between Cabot and Air Products

Considering the 90-day investment horizon Cabot is expected to generate 2.58 times less return on investment than Air Products. In addition to that, Cabot is 2.34 times more volatile than Air Products and. It trades about 0.04 of its total potential returns per unit of risk. Air Products and is currently generating about 0.25 per unit of volatility. If you would invest  31,530  in Air Products and on August 30, 2024 and sell it today you would earn a total of  1,792  from holding Air Products and or generate 5.68% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	95.65%
Values	Daily Returns

Cabot  vs.  Air Products and

Cabot

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Cabot are ranked lower than 3 (%) 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.

Air Products

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Air Products and are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile basic indicators, Air Products exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Cabot and Air Products

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

The idea behind Cabot and Air Products and 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.

Check out your portfolio center.

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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..