Correlation Between Kao and Hengan International
Can any of the company-specific risk be diversified away by investing in both Kao and Hengan International 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 Kao and Hengan International into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Kao Corporation and Hengan International Group, you can compare the effects of market volatilities on Kao and Hengan International 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 Kao with a short position of Hengan International. Check out your portfolio center. Please also check ongoing floating volatility patterns of Kao and Hengan International.
Diversification Opportunities for Kao and Hengan International
0.52 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Kao and Hengan is 0.52. Overlapping area represents the amount of risk that can be diversified away by holding Kao Corp. and Hengan International Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hengan International and Kao 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 Kao Corporation are associated (or correlated) with Hengan International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hengan International has no effect on the direction of Kao i.e., Kao and Hengan International go up and down completely randomly.
Pair Corralation between Kao and Hengan International
Assuming the 90 days horizon Kao Corporation is expected to under-perform the Hengan International. In addition to that, Kao is 2.24 times more volatile than Hengan International Group. It trades about -0.22 of its total potential returns per unit of risk. Hengan International Group is currently generating about -0.09 per unit of volatility. If you would invest 1,492 in Hengan International Group on September 3, 2024 and sell it today you would lose (51.00) from holding Hengan International Group or give up 3.42% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Kao Corp. vs. Hengan International Group
Performance |
| Timeline |
| Kao Corporation |
| Hengan International |
Kao and Hengan International Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Kao and Hengan International
The main advantage of trading using opposite Kao and Hengan International positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Kao position performs unexpectedly, Hengan International 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 Hengan International will offset losses from the drop in Hengan International's long position.The idea behind Kao Corporation and Hengan International Group 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.| Hengan International vs. LOral SA | Hengan International vs. LOreal Co ADR | Hengan International vs. Unilever PLC ADR | Hengan International vs. Kimberly Clark |
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.
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