Correlation Between Shin-Etsu Chemical and Nitto Denko

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

Diversification Opportunities for Shin-Etsu Chemical and Nitto Denko

-0.83

Correlation Coefficient

Shin-Etsu Chemical  Nitto Denko

Pay attention - limited upside

The 3 months correlation between Shin-Etsu and Nitto is -0.83. Overlapping area represents the amount of risk that can be diversified away by holding Shin Etsu Chemical Co and Nitto Denko Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nitto Denko Corp 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 Nitto Denko. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nitto Denko Corp has no effect on the direction of Shin-Etsu Chemical i.e., Shin-Etsu Chemical and Nitto Denko go up and down completely randomly.

Pair Corralation between Shin-Etsu Chemical and Nitto Denko

Assuming the 90 days horizon Shin Etsu Chemical Co is expected to under-perform the Nitto Denko. But the pink sheet apears to be less risky and, when comparing its historical volatility, Shin Etsu Chemical Co is 1.09 times less risky than Nitto Denko. The pink sheet trades about -0.06 of its potential returns per unit of risk. The Nitto Denko Corp is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest  1,629  in Nitto Denko Corp on December 19, 2024 and sell it today you would earn a total of  361.00  from holding Nitto Denko Corp or generate 22.16% return on investment over 90 days.

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

Shin Etsu Chemical Co  vs.  Nitto Denko Corp

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. In spite of latest fragile performance, the Stock's fundamental indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Nitto Denko Corp

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Nitto Denko Corp are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unsteady forward-looking signals, Nitto Denko showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Shin-Etsu Chemical and Nitto Denko

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

The idea behind Shin Etsu Chemical Co and Nitto Denko Corp 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.