Correlation Between Shinhan Financial and Mitsui Chemicals

Can any of the company-specific risk be diversified away by investing in both Shinhan Financial and Mitsui Chemicals 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 Shinhan Financial and Mitsui Chemicals into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Shinhan Financial Group and Mitsui Chemicals ADR, you can compare the effects of market volatilities on Shinhan Financial and Mitsui Chemicals 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 Shinhan Financial with a short position of Mitsui Chemicals. Check out your portfolio center. Please also check ongoing floating volatility patterns of Shinhan Financial and Mitsui Chemicals.

Diversification Opportunities for Shinhan Financial and Mitsui Chemicals

0.9

Correlation Coefficient

Shinhan Financial  Mitsui Chemicals

Almost no diversification

The 3 months correlation between Shinhan and Mitsui is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding Shinhan Financial Group and Mitsui Chemicals ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mitsui Chemicals ADR and Shinhan Financial 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 Shinhan Financial Group are associated (or correlated) with Mitsui Chemicals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Mitsui Chemicals ADR has no effect on the direction of Shinhan Financial i.e., Shinhan Financial and Mitsui Chemicals go up and down completely randomly.

Pair Corralation between Shinhan Financial and Mitsui Chemicals

Considering the 90-day investment horizon Shinhan Financial Group is expected to under-perform the Mitsui Chemicals. But the stock apears to be less risky and, when comparing its historical volatility, Shinhan Financial Group is 3.43 times less risky than Mitsui Chemicals. The stock trades about -0.48 of its potential returns per unit of risk. The Mitsui Chemicals ADR is currently generating about -0.04 of returns per unit of risk over similar time horizon. If you would invest  1,123  in Mitsui Chemicals ADR on September 28, 2024 and sell it today you would lose (93.00) from holding Mitsui Chemicals ADR or give up 8.28% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	95.24%
Values	Daily Returns

Shinhan Financial Group  vs.  Mitsui Chemicals ADR

Shinhan Financial

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Shinhan Financial Group has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's technical 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.

Mitsui Chemicals ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Mitsui Chemicals ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Shinhan Financial and Mitsui Chemicals

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

The idea behind Shinhan Financial Group and Mitsui Chemicals ADR 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.