Correlation Between China Energy and Mitsui Chemicals

Can any of the company-specific risk be diversified away by investing in both China Energy and Mitsui Chemicals 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 China Energy and Mitsui Chemicals into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between China Energy Engineering and Mitsui Chemicals, you can compare the effects of market volatilities on China Energy and Mitsui Chemicals 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 China Energy with a short position of Mitsui Chemicals. Check out your portfolio center. Please also check ongoing floating volatility patterns of China Energy and Mitsui Chemicals.

Diversification Opportunities for China Energy and Mitsui Chemicals

-0.4

Correlation Coefficient

China Energy  Mitsui Chemicals

Very good diversification

The 3 months correlation between China and Mitsui is -0.4. Overlapping area represents the amount of risk that can be diversified away by holding China Energy Engineering and Mitsui Chemicals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mitsui Chemicals and China Energy 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 China Energy Engineering are associated (or correlated) with Mitsui Chemicals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Mitsui Chemicals has no effect on the direction of China Energy i.e., China Energy and Mitsui Chemicals go up and down completely randomly.

Pair Corralation between China Energy and Mitsui Chemicals

Assuming the 90 days horizon China Energy Engineering is expected to generate 2.82 times more return on investment than Mitsui Chemicals. However, China Energy is 2.82 times more volatile than Mitsui Chemicals. It trades about 0.05 of its potential returns per unit of risk. Mitsui Chemicals is currently generating about -0.07 per unit of risk. If you would invest  11.00  in China Energy Engineering on October 9, 2024 and sell it today you would earn a total of  1.00  from holding China Energy Engineering or generate 9.09% return on investment over 90 days.

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

China Energy Engineering  vs.  Mitsui Chemicals

China Energy Engineering

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in China Energy Engineering are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, China Energy reported solid returns over the last few months and may actually be approaching a breakup point.

Mitsui Chemicals

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Mitsui Chemicals has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest fragile performance, the Stock's forward indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Pair Trading with China Energy and Mitsui Chemicals

The main advantage of trading using opposite China Energy and Mitsui Chemicals positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if China Energy position performs unexpectedly, Mitsui Chemicals 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 Mitsui Chemicals will offset losses from the drop in Mitsui Chemicals' long position.

The idea behind China Energy Engineering and Mitsui Chemicals 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.

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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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.