Correlation Between Innospec and CN Energy

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

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

Diversification Opportunities for Innospec and CN Energy

-0.54

Correlation Coefficient

Innospec  CN Energy

Excellent diversification

The 3 months correlation between Innospec and CNEY is -0.54. Overlapping area represents the amount of risk that can be diversified away by holding Innospec and CN Energy Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CN Energy Group and Innospec 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 Innospec are associated (or correlated) with CN Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CN Energy Group has no effect on the direction of Innospec i.e., Innospec and CN Energy go up and down completely randomly.

Pair Corralation between Innospec and CN Energy

Given the investment horizon of 90 days Innospec is expected to generate 10.86 times less return on investment than CN Energy. But when comparing it to its historical volatility, Innospec is 14.05 times less risky than CN Energy. It trades about 0.03 of its potential returns per unit of risk. CN Energy Group is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  294.00  in CN Energy Group on September 14, 2024 and sell it today you would lose (262.00) from holding CN Energy Group or give up 89.12% of portfolio value over 90 days.

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

Innospec  vs.  CN Energy Group

Innospec

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Innospec are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, Innospec may actually be approaching a critical reversion point that can send shares even higher in January 2025.

CN Energy Group

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in CN Energy Group are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak technical and fundamental indicators, CN Energy showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Innospec and CN Energy

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

The idea behind Innospec and CN Energy Group 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.