Correlation Between Valhi and Employers Holdings

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

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

Diversification Opportunities for Valhi and Employers Holdings

-0.6

Correlation Coefficient

Valhi  Employers Holdings

Excellent diversification

The 3 months correlation between Valhi and Employers is -0.6. Overlapping area represents the amount of risk that can be diversified away by holding Valhi Inc and Employers Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Employers Holdings and Valhi 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 Valhi Inc are associated (or correlated) with Employers Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Employers Holdings has no effect on the direction of Valhi i.e., Valhi and Employers Holdings go up and down completely randomly.

Pair Corralation between Valhi and Employers Holdings

Considering the 90-day investment horizon Valhi Inc is expected to generate 2.59 times more return on investment than Employers Holdings. However, Valhi is 2.59 times more volatile than Employers Holdings. It trades about 0.02 of its potential returns per unit of risk. Employers Holdings is currently generating about 0.04 per unit of risk. If you would invest  2,103  in Valhi Inc on September 26, 2024 and sell it today you would earn a total of  100.00  from holding Valhi Inc or generate 4.76% return on investment over 90 days.

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

Valhi Inc  vs.  Employers Holdings

Valhi Inc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Valhi Inc 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 technical indicators remain fairly strong which may send shares a bit higher in January 2025. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.

Employers Holdings

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Employers Holdings are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly inconsistent forward indicators, Employers Holdings may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Valhi and Employers Holdings

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

The idea behind Valhi Inc and Employers Holdings 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 Transaction History module to view history of all your transactions and understand their impact on performance.