Correlation Between Koppers Holdings and Innospec

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

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

Diversification Opportunities for Koppers Holdings and Innospec

0.66

Correlation Coefficient

Koppers Holdings  Innospec

Poor diversification

The 3 months correlation between Koppers and Innospec is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Koppers Holdings and Innospec in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Innospec and Koppers Holdings 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 Koppers Holdings are associated (or correlated) with Innospec. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Innospec has no effect on the direction of Koppers Holdings i.e., Koppers Holdings and Innospec go up and down completely randomly.

Pair Corralation between Koppers Holdings and Innospec

Considering the 90-day investment horizon Koppers Holdings is expected to generate 5.94 times less return on investment than Innospec. In addition to that, Koppers Holdings is 1.09 times more volatile than Innospec. It trades about 0.01 of its total potential returns per unit of risk. Innospec is currently generating about 0.06 per unit of volatility. If you would invest  11,106  in Innospec on September 2, 2024 and sell it today you would earn a total of  755.00  from holding Innospec or generate 6.8% return on investment over 90 days.

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

Koppers Holdings  vs.  Innospec

Koppers Holdings

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Koppers Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable basic indicators, Koppers Holdings is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

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.

Pair Trading with Koppers Holdings and Innospec

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

The idea behind Koppers Holdings and Innospec 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.