Correlation Between National Health and Mitsui Chemicals

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

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

Diversification Opportunities for National Health and Mitsui Chemicals

0.57

Correlation Coefficient

National Health  Mitsui Chemicals

Very weak diversification

The 3 months correlation between National and Mitsui is 0.57. Overlapping area represents the amount of risk that can be diversified away by holding National Health Investors and Mitsui Chemicals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mitsui Chemicals and National Health 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 National Health Investors 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 has no effect on the direction of National Health i.e., National Health and Mitsui Chemicals go up and down completely randomly.

Pair Corralation between National Health and Mitsui Chemicals

Assuming the 90 days trading horizon National Health Investors is expected to generate 0.93 times more return on investment than Mitsui Chemicals. However, National Health Investors is 1.08 times less risky than Mitsui Chemicals. It trades about 0.06 of its potential returns per unit of risk. Mitsui Chemicals is currently generating about 0.01 per unit of risk. If you would invest  4,299  in National Health Investors on September 23, 2024 and sell it today you would earn a total of  2,301  from holding National Health Investors or generate 53.52% return on investment over 90 days.

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

National Health Investors  vs.  Mitsui Chemicals

National Health Investors

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days National Health Investors has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Mitsui Chemicals

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Mitsui Chemicals 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 forward indicators remain rather sound which may send shares a bit higher in January 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with National Health and Mitsui Chemicals

The main advantage of trading using opposite National Health and Mitsui Chemicals positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if National Health 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 National Health Investors and Mitsui Chemicals 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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.