Correlation Between Dow and Shin-Etsu Chemical
Can any of the company-specific risk be diversified away by investing in both Dow 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 Dow 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 Dow Inc and Shin Etsu Chemical Co, you can compare the effects of market volatilities on Dow 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 Dow with a short position of Shin-Etsu Chemical. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dow and Shin-Etsu Chemical.
Diversification Opportunities for Dow and Shin-Etsu Chemical
0.73 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Dow and Shin-Etsu is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Dow Inc 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 Dow 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 Dow Inc 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 Dow i.e., Dow and Shin-Etsu Chemical go up and down completely randomly.
Pair Corralation between Dow and Shin-Etsu Chemical
Considering the 90-day investment horizon Dow Inc is expected to under-perform the Shin-Etsu Chemical. But the stock apears to be less risky and, when comparing its historical volatility, Dow Inc is 2.66 times less risky than Shin-Etsu Chemical. The stock trades about -0.26 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 3,587 in Shin Etsu Chemical Co on September 1, 2024 and sell it today you would lose (23.00) from holding Shin Etsu Chemical Co or give up 0.64% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Dow Inc vs. Shin Etsu Chemical Co
Performance |
| Timeline |
| Dow Inc |
| Shin Etsu Chemical |
Dow and Shin-Etsu Chemical Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Dow and Shin-Etsu Chemical
The main advantage of trading using opposite Dow and Shin-Etsu Chemical positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dow 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 Dow Inc 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.| Shin-Etsu Chemical vs. Kuraray Co | Shin-Etsu Chemical vs. Mitsubishi Chemical Holdings | Shin-Etsu Chemical vs. Sumitomo Chemical Co | Shin-Etsu Chemical vs. Valhi Inc |
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 Equity Valuation module to check real value of public entities based on technical and fundamental data.
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