Correlation Between Westlake Chemical and Albemarle

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

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

Diversification Opportunities for Westlake Chemical and Albemarle

0.31

Correlation Coefficient

Westlake Chemical  Albemarle

Weak diversification

The 3 months correlation between Westlake and Albemarle is 0.31. Overlapping area represents the amount of risk that can be diversified away by holding Westlake Chemical and Albemarle in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Albemarle and Westlake Chemical 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 Westlake Chemical are associated (or correlated) with Albemarle. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Albemarle has no effect on the direction of Westlake Chemical i.e., Westlake Chemical and Albemarle go up and down completely randomly.

Pair Corralation between Westlake Chemical and Albemarle

Assuming the 90 days horizon Westlake Chemical is expected to under-perform the Albemarle. But the stock apears to be less risky and, when comparing its historical volatility, Westlake Chemical is 2.62 times less risky than Albemarle. The stock trades about -0.1 of its potential returns per unit of risk. The Albemarle is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  8,619  in Albemarle on October 20, 2024 and sell it today you would earn a total of  981.00  from holding Albemarle or generate 11.38% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.36%
Values	Daily Returns

Westlake Chemical  vs.  Albemarle

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 latest fragile 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.

Albemarle

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Albemarle are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Albemarle reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Westlake Chemical and Albemarle

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

The idea behind Westlake Chemical and Albemarle 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.

Check out your portfolio center.

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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.