Correlation Between Idemitsu Kosan and Sinopec Shanghai

Can any of the company-specific risk be diversified away by investing in both Idemitsu Kosan and Sinopec Shanghai 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 Idemitsu Kosan and Sinopec Shanghai into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Idemitsu Kosan CoLtd and Sinopec Shanghai Petrochemical, you can compare the effects of market volatilities on Idemitsu Kosan and Sinopec Shanghai 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 Idemitsu Kosan with a short position of Sinopec Shanghai. Check out your portfolio center. Please also check ongoing floating volatility patterns of Idemitsu Kosan and Sinopec Shanghai.

Diversification Opportunities for Idemitsu Kosan and Sinopec Shanghai

0.23

Correlation Coefficient

Idemitsu Kosan  Sinopec Shanghai

Modest diversification

The 3 months correlation between Idemitsu and Sinopec is 0.23. Overlapping area represents the amount of risk that can be diversified away by holding Idemitsu Kosan CoLtd and Sinopec Shanghai Petrochemical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sinopec Shanghai Pet and Idemitsu Kosan 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 Idemitsu Kosan CoLtd are associated (or correlated) with Sinopec Shanghai. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sinopec Shanghai Pet has no effect on the direction of Idemitsu Kosan i.e., Idemitsu Kosan and Sinopec Shanghai go up and down completely randomly.

Pair Corralation between Idemitsu Kosan and Sinopec Shanghai

Assuming the 90 days horizon Idemitsu Kosan is expected to generate 10.58 times less return on investment than Sinopec Shanghai. But when comparing it to its historical volatility, Idemitsu Kosan CoLtd is 3.39 times less risky than Sinopec Shanghai. It trades about 0.03 of its potential returns per unit of risk. Sinopec Shanghai Petrochemical is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  11.00  in Sinopec Shanghai Petrochemical on September 14, 2024 and sell it today you would earn a total of  3.00  from holding Sinopec Shanghai Petrochemical or generate 27.27% return on investment over 90 days.

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

Idemitsu Kosan CoLtd  vs.  Sinopec Shanghai Petrochemical

Idemitsu Kosan CoLtd

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Idemitsu Kosan CoLtd are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Idemitsu Kosan is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Sinopec Shanghai Pet

Risk-Adjusted Performance

7 of 100

OK

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

Pair Trading with Idemitsu Kosan and Sinopec Shanghai

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

The idea behind Idemitsu Kosan CoLtd and Sinopec Shanghai Petrochemical 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.