Correlation Between Westlake Chemical and Dow

Can any of the company-specific risk be diversified away by investing in both Westlake Chemical and Dow 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 Dow 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 Dow Inc, you can compare the effects of market volatilities on Westlake Chemical and Dow 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 Dow. Check out your portfolio center. Please also check ongoing floating volatility patterns of Westlake Chemical and Dow.

Diversification Opportunities for Westlake Chemical and Dow

0.22

Correlation Coefficient

Westlake Chemical  Dow

Modest diversification

The 3 months correlation between Westlake and Dow is 0.22. Overlapping area represents the amount of risk that can be diversified away by holding Westlake Chemical Partners and Dow Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dow 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 Dow. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dow Inc has no effect on the direction of Westlake Chemical i.e., Westlake Chemical and Dow go up and down completely randomly.

Pair Corralation between Westlake Chemical and Dow

Given the investment horizon of 90 days Westlake Chemical Partners is expected to generate 0.51 times more return on investment than Dow. However, Westlake Chemical Partners is 1.95 times less risky than Dow. It trades about 0.04 of its potential returns per unit of risk. Dow Inc is currently generating about -0.04 per unit of risk. If you would invest  2,196  in Westlake Chemical Partners on June 23, 2024 and sell it today you would earn a total of  35.00  from holding Westlake Chemical Partners or generate 1.59% return on investment over 90 days.

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

Westlake Chemical Partners  vs.  Dow Inc

Westlake Chemical

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Westlake Chemical Partners are ranked lower than 3 (%) 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.

Dow Inc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Dow Inc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Dow is not utilizing all of its potentials. The recent stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Westlake Chemical and Dow

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

The idea behind Westlake Chemical Partners and Dow 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.

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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 Portfolio Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.