Correlation Between Innospec and Quaker Chemical

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

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

Diversification Opportunities for Innospec and Quaker Chemical

0.67

Correlation Coefficient

Innospec  Quaker Chemical

Poor diversification

The 3 months correlation between Innospec and Quaker is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Innospec and Quaker Chemical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Quaker Chemical 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 Quaker Chemical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Quaker Chemical has no effect on the direction of Innospec i.e., Innospec and Quaker Chemical go up and down completely randomly.

Pair Corralation between Innospec and Quaker Chemical

Given the investment horizon of 90 days Innospec is expected to under-perform the Quaker Chemical. But the stock apears to be less risky and, when comparing its historical volatility, Innospec is 1.13 times less risky than Quaker Chemical. The stock trades about -0.12 of its potential returns per unit of risk. The Quaker Chemical is currently generating about -0.07 of returns per unit of risk over similar time horizon. If you would invest  15,712  in Quaker Chemical on November 28, 2024 and sell it today you would lose (1,271) from holding Quaker Chemical or give up 8.09% of portfolio value over 90 days.

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

Innospec  vs.  Quaker Chemical

Innospec

Risk-Adjusted Performance

Very Weak

Over the last 90 days Innospec has generated negative risk-adjusted returns adding no value to investors with long positions. Even with weak performance in the last few months, the Stock's basic indicators remain relatively invariable which may send shares a bit higher in March 2025. The latest agitation may also be a sign of long-running up-swing for the enterprise retail investors.

Quaker Chemical

Risk-Adjusted Performance

Very Weak

Over the last 90 days Quaker Chemical has generated negative risk-adjusted returns adding no value to investors with long positions. Even with latest weak performance, the Stock's basic indicators remain invariable and the latest agitation on Wall Street may also be a sign of long-running gains for the enterprise retail investors.

Pair Trading with Innospec and Quaker Chemical

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

The idea behind Innospec and Quaker Chemical 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 Valuation module to check real value of public entities based on technical and fundamental data.