Correlation Between HEXPOL AB and Lanxess AG

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

By analyzing existing cross correlation between HEXPOL AB and Lanxess AG, you can compare the effects of market volatilities on HEXPOL AB and Lanxess AG 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 HEXPOL AB with a short position of Lanxess AG. Check out your portfolio center. Please also check ongoing floating volatility patterns of HEXPOL AB and Lanxess AG.

Diversification Opportunities for HEXPOL AB and Lanxess AG

0.47

Correlation Coefficient

HEXPOL AB  Lanxess AG

Very weak diversification

The 3 months correlation between HEXPOL and Lanxess is 0.47. Overlapping area represents the amount of risk that can be diversified away by holding HEXPOL AB and Lanxess AG in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lanxess AG and HEXPOL AB 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 HEXPOL AB are associated (or correlated) with Lanxess AG. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lanxess AG has no effect on the direction of HEXPOL AB i.e., HEXPOL AB and Lanxess AG go up and down completely randomly.

Pair Corralation between HEXPOL AB and Lanxess AG

Assuming the 90 days horizon HEXPOL AB is expected to under-perform the Lanxess AG. But the pink sheet apears to be less risky and, when comparing its historical volatility, HEXPOL AB is 1.27 times less risky than Lanxess AG. The pink sheet trades about -0.08 of its potential returns per unit of risk. The Lanxess AG is currently generating about -0.03 of returns per unit of risk over similar time horizon. If you would invest  2,685  in Lanxess AG on September 30, 2024 and sell it today you would lose (268.00) from holding Lanxess AG or give up 9.98% of portfolio value over 90 days.

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

HEXPOL AB  vs.  Lanxess AG

HEXPOL AB

Risk-Adjusted Performance

0 of 100

Very Weak

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

Lanxess AG

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Lanxess AG has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unsteady performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with HEXPOL AB and Lanxess AG

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

The idea behind HEXPOL AB and Lanxess AG 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.

Check out your portfolio center.

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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.