Correlation Between Mitsubishi Chemical and Shin Etsu

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

By analyzing existing cross correlation between Mitsubishi Chemical Holdings and Shin Etsu Chemical Co, you can compare the effects of market volatilities on Mitsubishi Chemical and Shin Etsu 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 Mitsubishi Chemical with a short position of Shin Etsu. Check out your portfolio center. Please also check ongoing floating volatility patterns of Mitsubishi Chemical and Shin Etsu.

Diversification Opportunities for Mitsubishi Chemical and Shin Etsu

0.66

Correlation Coefficient

Mitsubishi Chemical  Shin Etsu

Poor diversification

The 3 months correlation between Mitsubishi and Shin is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Mitsubishi Chemical Holdings 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 Mitsubishi Chemical 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 Mitsubishi Chemical Holdings are associated (or correlated) with Shin Etsu. 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 Mitsubishi Chemical i.e., Mitsubishi Chemical and Shin Etsu go up and down completely randomly.

Pair Corralation between Mitsubishi Chemical and Shin Etsu

Assuming the 90 days horizon Mitsubishi Chemical Holdings is expected to under-perform the Shin Etsu. But the pink sheet apears to be less risky and, when comparing its historical volatility, Mitsubishi Chemical Holdings is 1.57 times less risky than Shin Etsu. The pink sheet trades about -0.1 of its potential returns per unit of risk. The Shin Etsu Chemical Co is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  3,845  in Shin Etsu Chemical Co on September 13, 2024 and sell it today you would lose (350.00) from holding Shin Etsu Chemical Co or give up 9.1% of portfolio value over 90 days.

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

Mitsubishi Chemical Holdings  vs.  Shin Etsu Chemical Co

Mitsubishi Chemical

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Mitsubishi Chemical Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's technical indicators remain fairly strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Shin Etsu Chemical

Risk-Adjusted Performance

0 of 100

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. Despite nearly stable fundamental indicators, Shin Etsu is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Mitsubishi Chemical and Shin Etsu

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

The idea behind Mitsubishi Chemical Holdings 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 Stock Tickers module to use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites.