Correlation Between Shin-Etsu Chemical and China BlueChemical

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

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

Diversification Opportunities for Shin-Etsu Chemical and China BlueChemical

0.62

Correlation Coefficient

Shin-Etsu Chemical  China BlueChemical

Poor diversification

The 3 months correlation between Shin-Etsu and China is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding Shin Etsu Chemical Co and China BlueChemical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China BlueChemical and Shin-Etsu 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 Shin Etsu Chemical Co are associated (or correlated) with China BlueChemical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China BlueChemical has no effect on the direction of Shin-Etsu Chemical i.e., Shin-Etsu Chemical and China BlueChemical go up and down completely randomly.

Pair Corralation between Shin-Etsu Chemical and China BlueChemical

Assuming the 90 days horizon Shin Etsu Chemical Co is expected to under-perform the China BlueChemical. But the stock apears to be less risky and, when comparing its historical volatility, Shin Etsu Chemical Co is 1.64 times less risky than China BlueChemical. The stock trades about -0.12 of its potential returns per unit of risk. The China BlueChemical is currently generating about -0.05 of returns per unit of risk over similar time horizon. If you would invest  26.00  in China BlueChemical on December 30, 2024 and sell it today you would lose (3.00) from holding China BlueChemical or give up 11.54% of portfolio value over 90 days.

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

Shin Etsu Chemical Co  vs.  China BlueChemical

Shin Etsu Chemical

Risk-Adjusted Performance

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 unsteady performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

China BlueChemical

Risk-Adjusted Performance

Very Weak

Over the last 90 days China BlueChemical has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest uncertain performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Shin-Etsu Chemical and China BlueChemical

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

The idea behind Shin Etsu Chemical Co and China BlueChemical 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.