Correlation Between Orion Engineered and Westlake Chemical

Can any of the company-specific risk be diversified away by investing in both Orion Engineered and Westlake 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 Orion Engineered and Westlake Chemical 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 Westlake Chemical, you can compare the effects of market volatilities on Orion Engineered and Westlake 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 Orion Engineered with a short position of Westlake Chemical. Check out your portfolio center. Please also check ongoing floating volatility patterns of Orion Engineered and Westlake Chemical.

Diversification Opportunities for Orion Engineered and Westlake Chemical

-0.12

Correlation Coefficient

Orion Engineered  Westlake Chemical

Good diversification

The 3 months correlation between Orion and Westlake is -0.12. Overlapping area represents the amount of risk that can be diversified away by holding Orion Engineered Carbons and Westlake Chemical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Westlake Chemical 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 Westlake Chemical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Westlake Chemical has no effect on the direction of Orion Engineered i.e., Orion Engineered and Westlake Chemical go up and down completely randomly.

Pair Corralation between Orion Engineered and Westlake Chemical

Considering the 90-day investment horizon Orion Engineered Carbons is expected to under-perform the Westlake Chemical. In addition to that, Orion Engineered is 2.25 times more volatile than Westlake Chemical. It trades about -0.2 of its total potential returns per unit of risk. Westlake Chemical is currently generating about -0.45 per unit of volatility. If you would invest  12,740  in Westlake Chemical on September 21, 2024 and sell it today you would lose (1,409) from holding Westlake Chemical or give up 11.06% of portfolio value over 90 days.

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

Orion Engineered Carbons  vs.  Westlake Chemical

Orion Engineered Carbons

Risk-Adjusted Performance

0 of 100

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 rather sound technical and fundamental indicators, Orion Engineered is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

Westlake Chemical

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Westlake Chemical has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unfluctuating performance in the last few months, the Stock's essential indicators remain quite persistent which may send shares a bit higher in January 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Pair Trading with Orion Engineered and Westlake Chemical

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

The idea behind Orion Engineered Carbons and Westlake 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.