Correlation Between Shin-Etsu Chemical and Sika AG

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

Diversification Opportunities for Shin-Etsu Chemical and Sika AG

-0.6

Correlation Coefficient

Shin-Etsu Chemical  Sika AG

Excellent diversification

The 3 months correlation between Shin-Etsu and Sika is -0.6. Overlapping area represents the amount of risk that can be diversified away by holding Shin Etsu Chemical Co and Sika AG in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sika AG 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 Sika AG. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sika AG has no effect on the direction of Shin-Etsu Chemical i.e., Shin-Etsu Chemical and Sika AG go up and down completely randomly.

Pair Corralation between Shin-Etsu Chemical and Sika AG

Assuming the 90 days horizon Shin-Etsu Chemical is expected to generate 40.68 times less return on investment than Sika AG. In addition to that, Shin-Etsu Chemical is 2.95 times more volatile than Sika AG. It trades about 0.0 of its total potential returns per unit of risk. Sika AG is currently generating about 0.09 per unit of volatility. If you would invest  23,558  in Sika AG on December 27, 2024 and sell it today you would earn a total of  2,212  from holding Sika AG or generate 9.39% return on investment over 90 days.

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

Shin Etsu Chemical Co  vs.  Sika AG

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 nearly stable fundamental 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.

Sika AG

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Sika AG are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, Sika AG may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Shin-Etsu Chemical and Sika AG

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

The idea behind Shin Etsu Chemical Co and Sika AG 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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.