Correlation Between Mitsui Chemicals and ABB

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

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

Diversification Opportunities for Mitsui Chemicals and ABB

-0.27

Correlation Coefficient

Mitsui Chemicals  ABB

Very good diversification

The 3 months correlation between Mitsui and ABB is -0.27. Overlapping area represents the amount of risk that can be diversified away by holding Mitsui Chemicals and ABB in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ABB and Mitsui Chemicals 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 Mitsui Chemicals are associated (or correlated) with ABB. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ABB has no effect on the direction of Mitsui Chemicals i.e., Mitsui Chemicals and ABB go up and down completely randomly.

Pair Corralation between Mitsui Chemicals and ABB

Assuming the 90 days trading horizon Mitsui Chemicals is expected to generate 0.66 times more return on investment than ABB. However, Mitsui Chemicals is 1.52 times less risky than ABB. It trades about 0.1 of its potential returns per unit of risk. ABB is currently generating about -0.01 per unit of risk. If you would invest  2,040  in Mitsui Chemicals on December 19, 2024 and sell it today you would earn a total of  160.00  from holding Mitsui Chemicals or generate 7.84% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.33%
Values	Daily Returns

Mitsui Chemicals  vs.  ABB

Mitsui Chemicals

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Mitsui Chemicals are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile forward indicators, Mitsui Chemicals may actually be approaching a critical reversion point that can send shares even higher in April 2025.

ABB

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Mitsui Chemicals and ABB

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

The idea behind Mitsui Chemicals and ABB 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.

Check out your portfolio center.

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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.