Correlation Between Furukawa Electric and Solvay SA

Can any of the company-specific risk be diversified away by investing in both Furukawa Electric and Solvay SA 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 Furukawa Electric and Solvay SA into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Furukawa Electric Co and Solvay SA, you can compare the effects of market volatilities on Furukawa Electric and Solvay SA 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 Furukawa Electric with a short position of Solvay SA. Check out your portfolio center. Please also check ongoing floating volatility patterns of Furukawa Electric and Solvay SA.

Diversification Opportunities for Furukawa Electric and Solvay SA

0.7

Correlation Coefficient

Furukawa Electric  Solvay SA

Poor diversification

The 3 months correlation between Furukawa and Solvay is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Furukawa Electric Co and Solvay SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Solvay SA and Furukawa Electric 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 Furukawa Electric Co are associated (or correlated) with Solvay SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Solvay SA has no effect on the direction of Furukawa Electric i.e., Furukawa Electric and Solvay SA go up and down completely randomly.

Pair Corralation between Furukawa Electric and Solvay SA

Assuming the 90 days horizon Furukawa Electric Co is expected to generate 1.92 times more return on investment than Solvay SA. However, Furukawa Electric is 1.92 times more volatile than Solvay SA. It trades about 0.09 of its potential returns per unit of risk. Solvay SA is currently generating about 0.09 per unit of risk. If you would invest  3,800  in Furukawa Electric Co on December 30, 2024 and sell it today you would earn a total of  1,030  from holding Furukawa Electric Co or generate 27.11% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	96.77%
Values	Daily Returns

Furukawa Electric Co  vs.  Solvay SA

Furukawa Electric

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Furukawa Electric Co are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, Furukawa Electric reported solid returns over the last few months and may actually be approaching a breakup point.

Solvay SA

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Solvay SA are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Solvay SA reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Furukawa Electric and Solvay SA

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

The idea behind Furukawa Electric Co and Solvay SA 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.