Correlation Between Cabot and International Flavors

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

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

Diversification Opportunities for Cabot and International Flavors

0.65

Correlation Coefficient

Cabot  International Flavors

Poor diversification

The 3 months correlation between Cabot and International is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Cabot and International Flavors Fragranc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on International Flavors 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 International Flavors. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of International Flavors has no effect on the direction of Cabot i.e., Cabot and International Flavors go up and down completely randomly.

Pair Corralation between Cabot and International Flavors

Considering the 90-day investment horizon Cabot is expected to under-perform the International Flavors. In addition to that, Cabot is 1.23 times more volatile than International Flavors Fragrances. It trades about -0.08 of its total potential returns per unit of risk. International Flavors Fragrances is currently generating about -0.1 per unit of volatility. If you would invest  8,354  in International Flavors Fragrances on December 30, 2024 and sell it today you would lose (706.00) from holding International Flavors Fragrances or give up 8.45% of portfolio value over 90 days.

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

Cabot  vs.  International Flavors Fragranc

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 latest weak performance, the Stock's fundamental drivers remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

International Flavors

Risk-Adjusted Performance

Very Weak

Over the last 90 days International Flavors Fragrances has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's technical and fundamental indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Cabot and International Flavors

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

The idea behind Cabot and International Flavors Fragrances 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.