Correlation Between Asahi Kaisei and Shin-Etsu Chemical

Can any of the company-specific risk be diversified away by investing in both Asahi Kaisei and Shin-Etsu 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 Asahi Kaisei and Shin-Etsu Chemical into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Asahi Kaisei Corp and Shin Etsu Chemical Co, you can compare the effects of market volatilities on Asahi Kaisei and Shin-Etsu 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 Asahi Kaisei with a short position of Shin-Etsu Chemical. Check out your portfolio center. Please also check ongoing floating volatility patterns of Asahi Kaisei and Shin-Etsu Chemical.

Diversification Opportunities for Asahi Kaisei and Shin-Etsu Chemical

0.76

Correlation Coefficient

Asahi Kaisei  Shin-Etsu Chemical

Poor diversification

The 3 months correlation between Asahi and Shin-Etsu is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Asahi Kaisei Corp and Shin Etsu Chemical Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shin Etsu Chemical and Asahi Kaisei 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 Asahi Kaisei Corp are associated (or correlated) with Shin-Etsu Chemical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shin Etsu Chemical has no effect on the direction of Asahi Kaisei i.e., Asahi Kaisei and Shin-Etsu Chemical go up and down completely randomly.

Pair Corralation between Asahi Kaisei and Shin-Etsu Chemical

Assuming the 90 days horizon Asahi Kaisei Corp is expected to under-perform the Shin-Etsu Chemical. But the pink sheet apears to be less risky and, when comparing its historical volatility, Asahi Kaisei Corp is 1.26 times less risky than Shin-Etsu Chemical. The pink sheet trades about -0.17 of its potential returns per unit of risk. The Shin Etsu Chemical Co is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  1,632  in Shin Etsu Chemical Co on October 24, 2024 and sell it today you would earn a total of  33.00  from holding Shin Etsu Chemical Co or generate 2.02% return on investment over 90 days.

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

Asahi Kaisei Corp  vs.  Shin Etsu Chemical Co

Asahi Kaisei Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Asahi Kaisei Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, Asahi Kaisei is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Shin Etsu Chemical

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Shin Etsu Chemical Co has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fragile performance in the last few months, the Stock's fundamental indicators remain fairly strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Asahi Kaisei and Shin-Etsu Chemical

The main advantage of trading using opposite Asahi Kaisei and Shin-Etsu Chemical positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Asahi Kaisei position performs unexpectedly, Shin-Etsu 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 Shin-Etsu Chemical will offset losses from the drop in Shin-Etsu Chemical's long position.

The idea behind Asahi Kaisei Corp and Shin Etsu Chemical Co 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.