Correlation Between Orion Engineered and Element Solutions

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

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

Diversification Opportunities for Orion Engineered and Element Solutions

0.22

Correlation Coefficient

Orion Engineered  Element Solutions

Modest diversification

The 3 months correlation between Orion and Element is 0.22. Overlapping area represents the amount of risk that can be diversified away by holding Orion Engineered Carbons and Element Solutions in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Element Solutions and Orion Engineered 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 Orion Engineered Carbons are associated (or correlated) with Element Solutions. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Element Solutions has no effect on the direction of Orion Engineered i.e., Orion Engineered and Element Solutions go up and down completely randomly.

Pair Corralation between Orion Engineered and Element Solutions

Considering the 90-day investment horizon Orion Engineered Carbons is expected to under-perform the Element Solutions. In addition to that, Orion Engineered is 1.36 times more volatile than Element Solutions. It trades about -0.08 of its total potential returns per unit of risk. Element Solutions is currently generating about -0.06 per unit of volatility. If you would invest  2,543  in Element Solutions on December 28, 2024 and sell it today you would lose (183.00) from holding Element Solutions or give up 7.2% of portfolio value over 90 days.

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

Orion Engineered Carbons  vs.  Element Solutions

Orion Engineered Carbons

Risk-Adjusted Performance

Very Weak

Over the last 90 days Orion Engineered Carbons has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's technical and fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Element Solutions

Risk-Adjusted Performance

Very Weak

Over the last 90 days Element Solutions has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unsteady performance, the Stock's basic indicators remain strong and the recent confusion on Wall Street may also be a sign of long-lasting gains for the firm traders.

Pair Trading with Orion Engineered and Element Solutions

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

The idea behind Orion Engineered Carbons and Element Solutions 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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.