Correlation Between Cabot and Quaker Chemical

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

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

Diversification Opportunities for Cabot and Quaker Chemical

0.2

Correlation Coefficient

Cabot  Quaker Chemical

Modest diversification

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

Pair Corralation between Cabot and Quaker Chemical

Considering the 90-day investment horizon Cabot is expected to under-perform the Quaker Chemical. But the stock apears to be less risky and, when comparing its historical volatility, Cabot is 1.6 times less risky than Quaker Chemical. The stock trades about -0.07 of its potential returns per unit of risk. The Quaker Chemical is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  15,875  in Quaker Chemical on August 20, 2024 and sell it today you would earn a total of  896.00  from holding Quaker Chemical or generate 5.64% return on investment over 90 days.

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

Cabot  vs.  Quaker Chemical

Cabot

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Cabot are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively abnormal fundamental drivers, Cabot may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Quaker Chemical

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Quaker Chemical are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable basic indicators, Quaker Chemical is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Cabot and Quaker Chemical

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

The idea behind Cabot and Quaker 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.

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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.