Correlation Between 5E Advanced and Element Solutions

Can any of the company-specific risk be diversified away by investing in both 5E Advanced 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 5E Advanced and Element Solutions into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between 5E Advanced Materials and Element Solutions, you can compare the effects of market volatilities on 5E Advanced 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 5E Advanced with a short position of Element Solutions. Check out your portfolio center. Please also check ongoing floating volatility patterns of 5E Advanced and Element Solutions.

Diversification Opportunities for 5E Advanced and Element Solutions

-0.14

Correlation Coefficient

5E Advanced  Element Solutions

Good diversification

The 3 months correlation between FEAM and Element is -0.14. Overlapping area represents the amount of risk that can be diversified away by holding 5E Advanced Materials and Element Solutions in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Element Solutions and 5E Advanced 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 5E Advanced Materials 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 5E Advanced i.e., 5E Advanced and Element Solutions go up and down completely randomly.

Pair Corralation between 5E Advanced and Element Solutions

Given the investment horizon of 90 days 5E Advanced Materials is expected to under-perform the Element Solutions. In addition to that, 5E Advanced is 5.21 times more volatile than Element Solutions. It trades about -0.27 of its total potential returns per unit of risk. Element Solutions is currently generating about -0.06 per unit of volatility. If you would invest  2,543  in Element Solutions on December 28, 2024 and sell it today you would lose (183.00) from holding Element Solutions or give up 7.2% of portfolio value over 90 days.

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

5E Advanced Materials  vs.  Element Solutions

5E Advanced Materials

Risk-Adjusted Performance

Very Weak

Over the last 90 days 5E Advanced Materials 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 basic indicators remain very healthy which may send shares a bit higher in April 2025. The recent disarray may also be a sign of long period up-swing for the firm 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 5E Advanced and Element Solutions

The main advantage of trading using opposite 5E Advanced and Element Solutions positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if 5E Advanced 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 5E Advanced Materials 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.