Correlation Between Shin Etsu and Asahi Kasei

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

Diversification Opportunities for Shin Etsu and Asahi Kasei

-0.51

Correlation Coefficient

Shin Etsu  Asahi Kasei

Excellent diversification

The 3 months correlation between Shin and Asahi is -0.51. Overlapping area represents the amount of risk that can be diversified away by holding Shin Etsu Chemical Co and Asahi Kasei in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Asahi Kasei 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 Asahi Kasei. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Asahi Kasei has no effect on the direction of Shin Etsu i.e., Shin Etsu and Asahi Kasei go up and down completely randomly.

Pair Corralation between Shin Etsu and Asahi Kasei

Assuming the 90 days horizon Shin Etsu Chemical Co is expected to generate 1.22 times more return on investment than Asahi Kasei. However, Shin Etsu is 1.22 times more volatile than Asahi Kasei. It trades about 0.04 of its potential returns per unit of risk. Asahi Kasei is currently generating about 0.03 per unit of risk. If you would invest  2,378  in Shin Etsu Chemical Co on September 18, 2024 and sell it today you would earn a total of  930.00  from holding Shin Etsu Chemical Co or generate 39.11% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	65.86%
Values	Daily Returns

Shin Etsu Chemical Co  vs.  Asahi Kasei

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 conflicting performance in the last few months, the Stock's fundamental 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.

Asahi Kasei

Risk-Adjusted Performance

0 of 100

Solid

Over the last 90 days Asahi Kasei has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly fragile basic indicators, Asahi Kasei may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Shin Etsu and Asahi Kasei

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

The idea behind Shin Etsu Chemical Co and Asahi Kasei 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.