Correlation Between Cabot and PPG Industries

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

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

Diversification Opportunities for Cabot and PPG Industries

0.72

Correlation Coefficient

Cabot  PPG Industries

Poor diversification

The 3 months correlation between Cabot and PPG is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Cabot and PPG Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PPG 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 PPG Industries. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PPG Industries has no effect on the direction of Cabot i.e., Cabot and PPG Industries go up and down completely randomly.

Pair Corralation between Cabot and PPG Industries

Considering the 90-day investment horizon Cabot is expected to under-perform the PPG Industries. But the stock apears to be less risky and, when comparing its historical volatility, Cabot is 1.01 times less risky than PPG Industries. The stock trades about -0.09 of its potential returns per unit of risk. The PPG Industries is currently generating about -0.07 of returns per unit of risk over similar time horizon. If you would invest  12,053  in PPG Industries on December 26, 2024 and sell it today you would lose (879.00) from holding PPG Industries or give up 7.29% of portfolio value over 90 days.

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

Cabot  vs.  PPG Industries

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.

PPG Industries

Risk-Adjusted Performance

Very Weak

Over the last 90 days PPG Industries has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unsteady performance, the Stock's basic 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 PPG Industries

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

The idea behind Cabot and PPG Industries 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.