Correlation Between Cabot and Element Solutions

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

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

Diversification Opportunities for Cabot and Element Solutions

0.87

Correlation Coefficient

Cabot  Element Solutions

Very poor diversification

The 3 months correlation between Cabot and Element is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Cabot and Element Solutions in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Element Solutions 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 Element Solutions. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Element Solutions has no effect on the direction of Cabot i.e., Cabot and Element Solutions go up and down completely randomly.

Pair Corralation between Cabot and Element Solutions

Considering the 90-day investment horizon Cabot is expected to under-perform the Element Solutions. In addition to that, Cabot is 1.19 times more volatile than Element Solutions. It trades about -0.24 of its total potential returns per unit of risk. Element Solutions is currently generating about -0.1 per unit of volatility. If you would invest  2,860  in Element Solutions on November 28, 2024 and sell it today you would lose (233.00) from holding Element Solutions or give up 8.15% of portfolio value over 90 days.

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

Cabot  vs.  Element Solutions

Cabot

Risk-Adjusted Performance

Very Weak

Over the last 90 days Cabot has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's fundamental drivers remain comparatively stable which may send shares a bit higher in March 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Element Solutions

Risk-Adjusted Performance

Very Weak

Over the last 90 days Element Solutions has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unsteady performance, the Stock's basic indicators remain strong and the recent confusion on Wall Street may also be a sign of long-lasting gains for the firm traders.

Pair Trading with Cabot and Element Solutions

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

The idea behind Cabot and Element Solutions 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.