Correlation Between Shin Etsu and Mitsubishi Gas

Can any of the company-specific risk be diversified away by investing in both Shin Etsu and Mitsubishi Gas 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 and Mitsubishi Gas 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 Mitsubishi Gas Chemical, you can compare the effects of market volatilities on Shin Etsu and Mitsubishi Gas 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 with a short position of Mitsubishi Gas. Check out your portfolio center. Please also check ongoing floating volatility patterns of Shin Etsu and Mitsubishi Gas.

Diversification Opportunities for Shin Etsu and Mitsubishi Gas

0.27

Correlation Coefficient

Shin Etsu  Mitsubishi Gas

Modest diversification

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

Pair Corralation between Shin Etsu and Mitsubishi Gas

Assuming the 90 days horizon Shin Etsu Chemical Co is expected to under-perform the Mitsubishi Gas. In addition to that, Shin Etsu is 1.38 times more volatile than Mitsubishi Gas Chemical. It trades about -0.16 of its total potential returns per unit of risk. Mitsubishi Gas Chemical is currently generating about 0.07 per unit of volatility. If you would invest  1,590  in Mitsubishi Gas Chemical on September 23, 2024 and sell it today you would earn a total of  60.00  from holding Mitsubishi Gas Chemical or generate 3.77% return on investment over 90 days.

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

Shin Etsu Chemical Co  vs.  Mitsubishi Gas Chemical

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

Mitsubishi Gas Chemical

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Mitsubishi Gas Chemical has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Mitsubishi Gas is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Shin Etsu and Mitsubishi Gas

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

The idea behind Shin Etsu Chemical Co and Mitsubishi Gas Chemical 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.