Correlation Between Dow and Shin-Etsu Chemical

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

Diversification Opportunities for Dow and Shin-Etsu Chemical

0.82

Correlation Coefficient

Dow  Shin-Etsu Chemical

Very poor diversification

The 3 months correlation between Dow and Shin-Etsu is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Dow Inc 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 Dow 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 Dow Inc 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 Dow i.e., Dow and Shin-Etsu Chemical go up and down completely randomly.

Pair Corralation between Dow and Shin-Etsu Chemical

Considering the 90-day investment horizon Dow Inc is expected to generate 1.19 times more return on investment than Shin-Etsu Chemical. However, Dow is 1.19 times more volatile than Shin Etsu Chemical Co. It trades about -0.04 of its potential returns per unit of risk. Shin Etsu Chemical Co is currently generating about -0.06 per unit of risk. If you would invest  3,921  in Dow Inc on December 20, 2024 and sell it today you would lose (202.00) from holding Dow Inc or give up 5.15% of portfolio value over 90 days.

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

Dow Inc  vs.  Shin Etsu Chemical Co

Dow Inc

Risk-Adjusted Performance

Very Weak

Over the last 90 days Dow Inc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Dow is not utilizing all of its potentials. The recent stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

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. In spite of fairly strong fundamental indicators, Shin-Etsu Chemical is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Dow and Shin-Etsu Chemical

The main advantage of trading using opposite Dow and Shin-Etsu Chemical positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dow 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 Dow Inc 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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.