Correlation Between General Environmental and Element Solutions

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

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

Diversification Opportunities for General Environmental and Element Solutions

0.05

Correlation Coefficient

General Environmental  Element Solutions

Significant diversification

The 3 months correlation between General and Element is 0.05. Overlapping area represents the amount of risk that can be diversified away by holding General Environmental Manageme and Element Solutions in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Element Solutions and General Environmental 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 General Environmental Management 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 General Environmental i.e., General Environmental and Element Solutions go up and down completely randomly.

Pair Corralation between General Environmental and Element Solutions

Given the investment horizon of 90 days General Environmental Management is expected to under-perform the Element Solutions. In addition to that, General Environmental is 7.97 times more volatile than Element Solutions. It trades about -0.01 of its total potential returns per unit of risk. Element Solutions is currently generating about -0.02 per unit of volatility. If you would invest  2,630  in Element Solutions on November 19, 2024 and sell it today you would lose (17.00) from holding Element Solutions or give up 0.65% of portfolio value over 90 days.

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

General Environmental Manageme  vs.  Element Solutions

General Environmental

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in General Environmental Management are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite fairly inconsistent basic indicators, General Environmental demonstrated solid returns over the last few months and may actually be approaching a breakup point.

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 fairly strong basic indicators, Element Solutions is not utilizing all of its potentials. The latest stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with General Environmental and Element Solutions

The main advantage of trading using opposite General Environmental and Element Solutions positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if General Environmental 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 General Environmental Management 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.