Correlation Between BASF SE and Shin-Etsu Chemical

Can any of the company-specific risk be diversified away by investing in both BASF SE 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 BASF SE 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 BASF SE NA and Shin Etsu Chemical Co, you can compare the effects of market volatilities on BASF SE 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 BASF SE with a short position of Shin-Etsu Chemical. Check out your portfolio center. Please also check ongoing floating volatility patterns of BASF SE and Shin-Etsu Chemical.

Diversification Opportunities for BASF SE and Shin-Etsu Chemical

-0.6

Correlation Coefficient

BASF SE  Shin-Etsu Chemical

Excellent diversification

The 3 months correlation between BASF and Shin-Etsu is -0.6. Overlapping area represents the amount of risk that can be diversified away by holding BASF SE NA 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 BASF SE 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 BASF SE NA 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 BASF SE i.e., BASF SE and Shin-Etsu Chemical go up and down completely randomly.

Pair Corralation between BASF SE and Shin-Etsu Chemical

Assuming the 90 days horizon BASF SE NA is expected to generate 0.62 times more return on investment than Shin-Etsu Chemical. However, BASF SE NA is 1.63 times less risky than Shin-Etsu Chemical. It trades about 0.08 of its potential returns per unit of risk. Shin Etsu Chemical Co is currently generating about -0.01 per unit of risk. If you would invest  4,440  in BASF SE NA on December 30, 2024 and sell it today you would earn a total of  645.00  from holding BASF SE NA or generate 14.53% return on investment over 90 days.

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

BASF SE NA  vs.  Shin Etsu Chemical Co

BASF SE NA

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in BASF SE NA are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, BASF SE reported solid returns over the last few months and may actually be approaching a breakup point.

Shin Etsu Chemical

Risk-Adjusted Performance

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. Despite nearly stable fundamental indicators, Shin-Etsu Chemical is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with BASF SE and Shin-Etsu Chemical

The main advantage of trading using opposite BASF SE and Shin-Etsu Chemical positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BASF SE 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 BASF SE NA 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.