Correlation Between AUTO TRADER and Mitsui Chemicals

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

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

Diversification Opportunities for AUTO TRADER and Mitsui Chemicals

0.57

Correlation Coefficient

AUTO TRADER  Mitsui Chemicals

Very weak diversification

The 3 months correlation between AUTO and Mitsui is 0.57. Overlapping area represents the amount of risk that can be diversified away by holding AUTO TRADER ADR and Mitsui Chemicals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mitsui Chemicals and AUTO TRADER 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 AUTO TRADER ADR 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 AUTO TRADER i.e., AUTO TRADER and Mitsui Chemicals go up and down completely randomly.

Pair Corralation between AUTO TRADER and Mitsui Chemicals

Assuming the 90 days trading horizon AUTO TRADER ADR is expected to under-perform the Mitsui Chemicals. But the stock apears to be less risky and, when comparing its historical volatility, AUTO TRADER ADR is 1.13 times less risky than Mitsui Chemicals. The stock trades about -0.1 of its potential returns per unit of risk. The Mitsui Chemicals is currently generating about -0.03 of returns per unit of risk over similar time horizon. If you would invest  2,120  in Mitsui Chemicals on October 23, 2024 and sell it today you would lose (80.00) from holding Mitsui Chemicals or give up 3.77% of portfolio value over 90 days.

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

AUTO TRADER ADR  vs.  Mitsui Chemicals

AUTO TRADER ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days AUTO TRADER ADR has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest uncertain performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

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 rather sound forward indicators, Mitsui Chemicals is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with AUTO TRADER and Mitsui Chemicals

The main advantage of trading using opposite AUTO TRADER and Mitsui Chemicals positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if AUTO TRADER 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 AUTO TRADER ADR 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.