Correlation Between Shiseido and Henkel AG

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

By analyzing existing cross correlation between Shiseido Company and Henkel AG Co, you can compare the effects of market volatilities on Shiseido and Henkel 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 Shiseido with a short position of Henkel AG. Check out your portfolio center. Please also check ongoing floating volatility patterns of Shiseido and Henkel AG.

Diversification Opportunities for Shiseido and Henkel AG

0.57

Correlation Coefficient

Shiseido  Henkel AG

Very weak diversification

The 3 months correlation between Shiseido and Henkel is 0.57. Overlapping area represents the amount of risk that can be diversified away by holding Shiseido Company and Henkel AG Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Henkel AG and Shiseido 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 Shiseido Company are associated (or correlated) with Henkel AG. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Henkel AG has no effect on the direction of Shiseido i.e., Shiseido and Henkel AG go up and down completely randomly.

Pair Corralation between Shiseido and Henkel AG

Assuming the 90 days horizon Shiseido Company is expected to under-perform the Henkel AG. In addition to that, Shiseido is 1.27 times more volatile than Henkel AG Co. It trades about -0.17 of its total potential returns per unit of risk. Henkel AG Co is currently generating about -0.01 per unit of volatility. If you would invest  8,047  in Henkel AG Co on September 17, 2024 and sell it today you would lose (136.00) from holding Henkel AG Co or give up 1.69% of portfolio value over 90 days.

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

Shiseido Company  vs.  Henkel AG Co

Shiseido

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Shiseido Company has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fragile 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.

Henkel AG

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Henkel AG Co has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable forward-looking signals, Henkel AG is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Shiseido and Henkel AG

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

The idea behind Shiseido Company and Henkel AG Co 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.