Correlation Between Hengan International and Kao
Can any of the company-specific risk be diversified away by investing in both Hengan International and Kao 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 Hengan International and Kao into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Hengan International Group and Kao Corporation, you can compare the effects of market volatilities on Hengan International and Kao 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 Hengan International with a short position of Kao. Check out your portfolio center. Please also check ongoing floating volatility patterns of Hengan International and Kao.
Diversification Opportunities for Hengan International and Kao
0.62 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Hengan and Kao is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding Hengan International Group and Kao Corp. in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kao Corporation and Hengan International 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 Hengan International Group are associated (or correlated) with Kao. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kao Corporation has no effect on the direction of Hengan International i.e., Hengan International and Kao go up and down completely randomly.
Pair Corralation between Hengan International and Kao
Assuming the 90 days horizon Hengan International Group is expected to under-perform the Kao. But the pink sheet apears to be less risky and, when comparing its historical volatility, Hengan International Group is 2.18 times less risky than Kao. The pink sheet trades about -0.03 of its potential returns per unit of risk. The Kao Corporation is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest 3,498 in Kao Corporation on December 2, 2024 and sell it today you would earn a total of 998.00 from holding Kao Corporation or generate 28.53% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 34.55% |
| Values | Daily Returns |
Hengan International Group vs. Kao Corp.
Performance |
| Timeline |
| Hengan International |
| Kao Corporation |
Hengan International and Kao Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Hengan International and Kao
The main advantage of trading using opposite Hengan International and Kao positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Hengan International position performs unexpectedly, Kao 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 Kao will offset losses from the drop in Kao's long position.| Hengan International vs. Essity AB | ||
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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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.
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