Correlation Between KRAKATAU STEEL and Shin Etsu

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

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

Diversification Opportunities for KRAKATAU STEEL and Shin Etsu

-0.49

Correlation Coefficient

KRAKATAU STEEL  Shin Etsu

Very good diversification

The 3 months correlation between KRAKATAU and Shin is -0.49. Overlapping area represents the amount of risk that can be diversified away by holding KRAKATAU STEEL B 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 KRAKATAU STEEL 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 KRAKATAU STEEL B 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 KRAKATAU STEEL i.e., KRAKATAU STEEL and Shin Etsu go up and down completely randomly.

Pair Corralation between KRAKATAU STEEL and Shin Etsu

Assuming the 90 days trading horizon KRAKATAU STEEL B is expected to generate 2.62 times more return on investment than Shin Etsu. However, KRAKATAU STEEL is 2.62 times more volatile than Shin Etsu Chemical Co. It trades about 0.15 of its potential returns per unit of risk. Shin Etsu Chemical Co is currently generating about -0.09 per unit of risk. If you would invest  0.40  in KRAKATAU STEEL B on September 22, 2024 and sell it today you would earn a total of  0.20  from holding KRAKATAU STEEL B or generate 50.0% return on investment over 90 days.

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

KRAKATAU STEEL B   vs.  Shin Etsu Chemical Co

KRAKATAU STEEL B

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in KRAKATAU STEEL B are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain forward-looking signals, KRAKATAU STEEL unveiled solid returns over the last few months and may actually be approaching a breakup point.

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 latest uncertain performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with KRAKATAU STEEL and Shin Etsu

The main advantage of trading using opposite KRAKATAU STEEL and Shin Etsu positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if KRAKATAU STEEL 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 KRAKATAU STEEL B 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 Portfolio Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.