Correlation Between Idemitsu Kosan and Kunlun Energy

Can any of the company-specific risk be diversified away by investing in both Idemitsu Kosan and Kunlun Energy 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 Kunlun Energy 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 Kunlun Energy Co, you can compare the effects of market volatilities on Idemitsu Kosan and Kunlun Energy 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 Kunlun Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Idemitsu Kosan and Kunlun Energy.

Diversification Opportunities for Idemitsu Kosan and Kunlun Energy

0.01

Correlation Coefficient

Idemitsu Kosan  Kunlun Energy

Significant diversification

The 3 months correlation between Idemitsu and Kunlun is 0.01. Overlapping area represents the amount of risk that can be diversified away by holding Idemitsu Kosan CoLtd and Kunlun Energy Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kunlun Energy 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 Kunlun Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kunlun Energy has no effect on the direction of Idemitsu Kosan i.e., Idemitsu Kosan and Kunlun Energy go up and down completely randomly.

Pair Corralation between Idemitsu Kosan and Kunlun Energy

Assuming the 90 days horizon Idemitsu Kosan is expected to generate 1.16 times less return on investment than Kunlun Energy. But when comparing it to its historical volatility, Idemitsu Kosan CoLtd is 1.86 times less risky than Kunlun Energy. It trades about 0.06 of its potential returns per unit of risk. Kunlun Energy Co is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  741.00  in Kunlun Energy Co on October 11, 2024 and sell it today you would earn a total of  256.00  from holding Kunlun Energy Co or generate 34.55% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	99.6%
Values	Daily Returns

Idemitsu Kosan CoLtd  vs.  Kunlun Energy Co

Idemitsu Kosan CoLtd

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Idemitsu Kosan CoLtd has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Idemitsu Kosan is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Kunlun Energy

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Kunlun Energy Co are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of fairly fragile fundamental indicators, Kunlun Energy may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Idemitsu Kosan and Kunlun Energy

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

The idea behind Idemitsu Kosan CoLtd and Kunlun Energy 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.