Correlation Between E I and Shin-Etsu Chemical

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

By analyzing existing cross correlation between E I du and Shin Etsu Chemical Co, you can compare the effects of market volatilities on E I and Shin-Etsu Chemical 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 E I with a short position of Shin-Etsu Chemical. Check out your portfolio center. Please also check ongoing floating volatility patterns of E I and Shin-Etsu Chemical.

Diversification Opportunities for E I and Shin-Etsu Chemical

0.39

Correlation Coefficient

E I  Shin-Etsu Chemical

Weak diversification

The 3 months correlation between CTA-PB and Shin-Etsu is 0.39. Overlapping area represents the amount of risk that can be diversified away by holding E I du and Shin Etsu Chemical Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shin Etsu Chemical and E I 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 E I du are associated (or correlated) with Shin-Etsu Chemical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shin Etsu Chemical has no effect on the direction of E I i.e., E I and Shin-Etsu Chemical go up and down completely randomly.

Pair Corralation between E I and Shin-Etsu Chemical

Assuming the 90 days trading horizon E I du is expected to under-perform the Shin-Etsu Chemical. But the preferred stock apears to be less risky and, when comparing its historical volatility, E I du is 3.71 times less risky than Shin-Etsu Chemical. The preferred stock trades about -0.19 of its potential returns per unit of risk. The Shin Etsu Chemical Co is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  3,940  in Shin Etsu Chemical Co on August 30, 2024 and sell it today you would lose (249.00) from holding Shin Etsu Chemical Co or give up 6.32% of portfolio value over 90 days.

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

E I du  vs.  Shin Etsu Chemical Co

E I du

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days E I du has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, E I is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Shin Etsu Chemical

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Shin Etsu Chemical Co has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable fundamental indicators, Shin-Etsu Chemical is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with E I and Shin-Etsu Chemical

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

The idea behind E I du and Shin Etsu Chemical Co 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.