Correlation Between Valhi and Gulf Resources

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

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

Diversification Opportunities for Valhi and Gulf Resources

-0.4

Correlation Coefficient

Valhi  Gulf Resources

Very good diversification

The 3 months correlation between Valhi and Gulf is -0.4. Overlapping area represents the amount of risk that can be diversified away by holding Valhi Inc and Gulf Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gulf Resources 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 Gulf Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Gulf Resources has no effect on the direction of Valhi i.e., Valhi and Gulf Resources go up and down completely randomly.

Pair Corralation between Valhi and Gulf Resources

Considering the 90-day investment horizon Valhi Inc is expected to under-perform the Gulf Resources. But the stock apears to be less risky and, when comparing its historical volatility, Valhi Inc is 2.24 times less risky than Gulf Resources. The stock trades about -0.13 of its potential returns per unit of risk. The Gulf Resources is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  53.00  in Gulf Resources on December 27, 2024 and sell it today you would earn a total of  19.00  from holding Gulf Resources or generate 35.85% return on investment over 90 days.

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

Valhi Inc  vs.  Gulf Resources

Valhi Inc

Risk-Adjusted Performance

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 April 2025. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.

Gulf Resources

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Gulf Resources are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak basic indicators, Gulf Resources exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Valhi and Gulf Resources

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

The idea behind Valhi Inc and Gulf Resources 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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.