Correlation Between Valhi and Shin Etsu

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

By analyzing existing cross correlation between Valhi Inc and Shin Etsu Chemical Co, you can compare the effects of market volatilities on Valhi and Shin Etsu 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 Valhi with a short position of Shin Etsu. Check out your portfolio center. Please also check ongoing floating volatility patterns of Valhi and Shin Etsu.

Diversification Opportunities for Valhi and Shin Etsu

0.76

Correlation Coefficient

Valhi  Shin Etsu

Poor diversification

The 3 months correlation between Valhi and Shin is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Valhi Inc and Shin Etsu Chemical Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shin Etsu Chemical and Valhi 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 Valhi Inc are associated (or correlated) with Shin Etsu. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shin Etsu Chemical has no effect on the direction of Valhi i.e., Valhi and Shin Etsu go up and down completely randomly.

Pair Corralation between Valhi and Shin Etsu

Considering the 90-day investment horizon Valhi is expected to generate 1.06 times less return on investment than Shin Etsu. In addition to that, Valhi is 1.24 times more volatile than Shin Etsu Chemical Co. It trades about 0.02 of its total potential returns per unit of risk. Shin Etsu Chemical Co is currently generating about 0.02 per unit of volatility. If you would invest  2,802  in Shin Etsu Chemical Co on October 21, 2024 and sell it today you would earn a total of  398.00  from holding Shin Etsu Chemical Co or generate 14.2% return on investment over 90 days.

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

Valhi Inc  vs.  Shin Etsu Chemical Co

Valhi Inc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Valhi Inc has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unfluctuating performance in the last few months, the Stock's technical indicators remain fairly strong which may send shares a bit higher in February 2025. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.

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 weak performance in the last few months, the Stock's fundamental indicators remain nearly stable which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Valhi and Shin Etsu

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

The idea behind Valhi Inc and Shin Etsu Chemical 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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.