Correlation Between PPG Industries and LyondellBasell Industries

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

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

Diversification Opportunities for PPG Industries and LyondellBasell Industries

0.59

Correlation Coefficient

PPG Industries  LyondellBasell Industries

Very weak diversification

The 3 months correlation between PPG and LyondellBasell is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding PPG Industries and LyondellBasell Industries NV in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LyondellBasell Industries and PPG 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 PPG Industries are associated (or correlated) with LyondellBasell Industries. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LyondellBasell Industries has no effect on the direction of PPG Industries i.e., PPG Industries and LyondellBasell Industries go up and down completely randomly.

Pair Corralation between PPG Industries and LyondellBasell Industries

Considering the 90-day investment horizon PPG Industries is expected to under-perform the LyondellBasell Industries. In addition to that, PPG Industries is 1.08 times more volatile than LyondellBasell Industries NV. It trades about -0.09 of its total potential returns per unit of risk. LyondellBasell Industries NV is currently generating about -0.02 per unit of volatility. If you would invest  7,191  in LyondellBasell Industries NV on December 29, 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	Weak
Accuracy	100.0%
Values	Daily Returns

PPG Industries  vs.  LyondellBasell Industries NV

PPG Industries

Risk-Adjusted Performance

Very Weak

Over the last 90 days PPG Industries has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unsteady performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

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.

Pair Trading with PPG Industries and LyondellBasell Industries

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

The idea behind PPG Industries and LyondellBasell Industries NV 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 Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.