Correlation Between SHIN ETSU and Li FT

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

By analyzing existing cross correlation between SHIN ETSU CHEMICAL and Li FT Power, you can compare the effects of market volatilities on SHIN ETSU and Li FT 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 Li FT. Check out your portfolio center. Please also check ongoing floating volatility patterns of SHIN ETSU and Li FT.

Diversification Opportunities for SHIN ETSU and Li FT

-0.27

Correlation Coefficient

SHIN ETSU  Li FT

Very good diversification

The 3 months correlation between SHIN and WS0 is -0.27. Overlapping area represents the amount of risk that can be diversified away by holding SHIN ETSU CHEMICAL and Li FT Power in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Li FT Power 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 are associated (or correlated) with Li FT. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Li FT Power has no effect on the direction of SHIN ETSU i.e., SHIN ETSU and Li FT go up and down completely randomly.

Pair Corralation between SHIN ETSU and Li FT

Assuming the 90 days trading horizon SHIN ETSU CHEMICAL is expected to generate 0.47 times more return on investment than Li FT. However, SHIN ETSU CHEMICAL is 2.11 times less risky than Li FT. It trades about -0.18 of its potential returns per unit of risk. Li FT Power is currently generating about -0.25 per unit of risk. If you would invest  3,429  in SHIN ETSU CHEMICAL on September 18, 2024 and sell it today you would lose (214.00) from holding SHIN ETSU CHEMICAL or give up 6.24% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.45%
Values	Daily Returns

SHIN ETSU CHEMICAL  vs.  Li FT Power

SHIN ETSU CHEMICAL

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days SHIN ETSU CHEMICAL has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Li FT Power

Risk-Adjusted Performance

0 of 100

Weak

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

Pair Trading with SHIN ETSU and Li FT

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

The idea behind SHIN ETSU CHEMICAL and Li FT Power 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 Money Managers module to screen money managers from public funds and ETFs managed around the world.