Correlation Between LyondellBasell Industries and Cabot

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

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

Diversification Opportunities for LyondellBasell Industries and Cabot

0.2

Correlation Coefficient

LyondellBasell Industries  Cabot

Modest diversification

The 3 months correlation between LyondellBasell and Cabot is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding LyondellBasell Industries NV and Cabot in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cabot and LyondellBasell Industries 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 LyondellBasell Industries NV are associated (or correlated) with Cabot. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cabot has no effect on the direction of LyondellBasell Industries i.e., LyondellBasell Industries and Cabot go up and down completely randomly.

Pair Corralation between LyondellBasell Industries and Cabot

Considering the 90-day investment horizon LyondellBasell Industries NV is expected to generate 0.95 times more return on investment than Cabot. However, LyondellBasell Industries NV is 1.05 times less risky than Cabot. It trades about -0.02 of its potential returns per unit of risk. Cabot is currently generating about -0.08 per unit of risk. If you would invest  7,191  in LyondellBasell Industries NV on December 30, 2024 and sell it today you would lose (209.00) from holding LyondellBasell Industries NV or give up 2.91% of portfolio value over 90 days.

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

LyondellBasell Industries NV  vs.  Cabot

LyondellBasell Industries

Risk-Adjusted Performance

Very Weak

Over the last 90 days LyondellBasell Industries NV has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, LyondellBasell Industries is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Cabot

Risk-Adjusted Performance

Very Weak

Over the last 90 days Cabot has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's fundamental drivers remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Pair Trading with LyondellBasell Industries and Cabot

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

The idea behind LyondellBasell Industries NV and Cabot 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..