Correlation Between Cabot and LyondellBasell Industries

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

By analyzing existing cross correlation between Cabot and LyondellBasell Industries NV, you can compare the effects of market volatilities on Cabot and LyondellBasell Industries 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 LyondellBasell Industries. Check out your portfolio center. Please also check ongoing floating volatility patterns of Cabot and LyondellBasell Industries.

Diversification Opportunities for Cabot and LyondellBasell Industries

-0.37

Correlation Coefficient

Cabot  LyondellBasell Industries

Very good diversification

The 3 months correlation between Cabot and LyondellBasell is -0.37. Overlapping area represents the amount of risk that can be diversified away by holding Cabot and LyondellBasell Industries NV in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LyondellBasell Industries 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 LyondellBasell Industries. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LyondellBasell Industries has no effect on the direction of Cabot i.e., Cabot and LyondellBasell Industries go up and down completely randomly.

Pair Corralation between Cabot and LyondellBasell Industries

Considering the 90-day investment horizon Cabot is expected to generate 1.49 times more return on investment than LyondellBasell Industries. However, Cabot is 1.49 times more volatile than LyondellBasell Industries NV. It trades about 0.06 of its potential returns per unit of risk. LyondellBasell Industries NV is currently generating about -0.21 per unit of risk. If you would invest  10,424  in Cabot on August 26, 2024 and sell it today you would earn a total of  612.00  from holding Cabot or generate 5.87% return on investment over 90 days.

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

Cabot  vs.  LyondellBasell Industries NV

Cabot

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Cabot are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak fundamental drivers, Cabot may actually be approaching a critical reversion point that can send shares even higher in December 2024.

LyondellBasell Industries

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days LyondellBasell Industries NV has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in December 2024. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Cabot and LyondellBasell Industries

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

The idea behind Cabot and LyondellBasell Industries NV 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 Global Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.