Correlation Between Shin-Etsu Chemical and Teradyne

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

Diversification Opportunities for Shin-Etsu Chemical and Teradyne

0.88

Correlation Coefficient

Shin-Etsu Chemical  Teradyne

Very poor diversification

The 3 months correlation between Shin-Etsu and Teradyne is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Shin Etsu Chemical Co and Teradyne in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Teradyne 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 Teradyne. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Teradyne has no effect on the direction of Shin-Etsu Chemical i.e., Shin-Etsu Chemical and Teradyne go up and down completely randomly.

Pair Corralation between Shin-Etsu Chemical and Teradyne

Assuming the 90 days horizon Shin Etsu Chemical Co is expected to generate 0.7 times more return on investment than Teradyne. However, Shin Etsu Chemical Co is 1.43 times less risky than Teradyne. It trades about 0.01 of its potential returns per unit of risk. Teradyne is currently generating about 0.0 per unit of risk. If you would invest  3,599  in Shin Etsu Chemical Co on September 5, 2024 and sell it today you would earn a total of  1.00  from holding Shin Etsu Chemical Co or generate 0.03% return on investment over 90 days.

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

Shin Etsu Chemical Co  vs.  Teradyne

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

Teradyne

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Shin-Etsu Chemical and Teradyne

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

The idea behind Shin Etsu Chemical Co and Teradyne 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.