Correlation Between Shin-Etsu Chemical and Sumitomo Chemical
Can any of the company-specific risk be diversified away by investing in both Shin-Etsu Chemical and Sumitomo 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 Shin-Etsu Chemical and Sumitomo Chemical into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Shin Etsu Chemical Co and Sumitomo Chemical, you can compare the effects of market volatilities on Shin-Etsu Chemical and Sumitomo 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 Shin-Etsu Chemical with a short position of Sumitomo Chemical. Check out your portfolio center. Please also check ongoing floating volatility patterns of Shin-Etsu Chemical and Sumitomo Chemical.
Diversification Opportunities for Shin-Etsu Chemical and Sumitomo Chemical
0.8 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Shin-Etsu and Sumitomo is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Shin Etsu Chemical Co and Sumitomo Chemical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sumitomo Chemical and Shin-Etsu 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 Shin Etsu Chemical Co are associated (or correlated) with Sumitomo Chemical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sumitomo Chemical has no effect on the direction of Shin-Etsu Chemical i.e., Shin-Etsu Chemical and Sumitomo Chemical go up and down completely randomly.
Pair Corralation between Shin-Etsu Chemical and Sumitomo Chemical
Assuming the 90 days horizon Shin Etsu Chemical Co is expected to generate 1.18 times more return on investment than Sumitomo Chemical. However, Shin-Etsu Chemical is 1.18 times more volatile than Sumitomo Chemical. It trades about -0.09 of its potential returns per unit of risk. Sumitomo Chemical is currently generating about -0.23 per unit of risk. If you would invest 3,491 in Shin Etsu Chemical Co on August 25, 2024 and sell it today you would lose (124.00) from holding Shin Etsu Chemical Co or give up 3.55% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Shin Etsu Chemical Co vs. Sumitomo Chemical
Performance |
| Timeline |
| Shin Etsu Chemical |
| Sumitomo Chemical |
Shin-Etsu Chemical and Sumitomo Chemical Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Shin-Etsu Chemical and Sumitomo Chemical
The main advantage of trading using opposite Shin-Etsu Chemical and Sumitomo Chemical positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Shin-Etsu Chemical position performs unexpectedly, Sumitomo 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 Sumitomo Chemical will offset losses from the drop in Sumitomo Chemical's long position.| Shin-Etsu Chemical vs. BRIT AMER TOBACCO | Shin-Etsu Chemical vs. Australian Agricultural | Shin-Etsu Chemical vs. Hanison Construction Holdings | Shin-Etsu Chemical vs. NORTHEAST UTILITIES |
| Sumitomo Chemical vs. Ultra Clean Holdings | Sumitomo Chemical vs. AGF Management Limited | Sumitomo Chemical vs. Clean Energy Fuels | Sumitomo Chemical vs. HEALTHCARE REAL A |
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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.
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