Correlation Between Westlake Chemical and Valhi

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

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

Diversification Opportunities for Westlake Chemical and Valhi

-0.36

Correlation Coefficient

Westlake Chemical  Valhi

Very good diversification

The 3 months correlation between Westlake and Valhi is -0.36. Overlapping area represents the amount of risk that can be diversified away by holding Westlake Chemical Partners and Valhi Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Valhi Inc 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 Partners are associated (or correlated) with Valhi. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Valhi Inc has no effect on the direction of Westlake Chemical i.e., Westlake Chemical and Valhi go up and down completely randomly.

Pair Corralation between Westlake Chemical and Valhi

Given the investment horizon of 90 days Westlake Chemical Partners is expected to generate 0.25 times more return on investment than Valhi. However, Westlake Chemical Partners is 3.98 times less risky than Valhi. It trades about 0.07 of its potential returns per unit of risk. Valhi Inc is currently generating about -0.14 per unit of risk. If you would invest  2,269  in Westlake Chemical Partners on December 29, 2024 and sell it today you would earn a total of  65.00  from holding Westlake Chemical Partners or generate 2.86% return on investment over 90 days.

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

Westlake Chemical Partners  vs.  Valhi Inc

Westlake Chemical

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Westlake Chemical Partners are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable forward-looking signals, Westlake Chemical is not utilizing all of its potentials. The recent stock price agitation, may contribute to short-term losses for the retail investors.

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.

Pair Trading with Westlake Chemical and Valhi

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

The idea behind Westlake Chemical Partners and Valhi Inc 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.