Correlation Between CHINA WATER and Mitsui Chemicals

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

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

Diversification Opportunities for CHINA WATER and Mitsui Chemicals

0.72

Correlation Coefficient

CHINA WATER  Mitsui Chemicals

Poor diversification

The 3 months correlation between CHINA and Mitsui is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding CHINA WATER IGR and Mitsui Chemicals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mitsui Chemicals and CHINA WATER 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 CHINA WATER IGR 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 CHINA WATER i.e., CHINA WATER and Mitsui Chemicals go up and down completely randomly.

Pair Corralation between CHINA WATER and Mitsui Chemicals

Assuming the 90 days trading horizon CHINA WATER IGR is expected to under-perform the Mitsui Chemicals. In addition to that, CHINA WATER is 4.5 times more volatile than Mitsui Chemicals. It trades about -0.07 of its total potential returns per unit of risk. Mitsui Chemicals is currently generating about -0.09 per unit of volatility. If you would invest  2,600  in Mitsui Chemicals on September 21, 2024 and sell it today you would lose (560.00) from holding Mitsui Chemicals or give up 21.54% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	99.07%
Values	Daily Returns

CHINA WATER IGR  vs.  Mitsui Chemicals

CHINA WATER IGR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days CHINA WATER IGR has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unsteady performance in the last few months, the Stock's basic 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

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 uncertain 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 CHINA WATER and Mitsui Chemicals

The main advantage of trading using opposite CHINA WATER and Mitsui Chemicals positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if CHINA WATER 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 CHINA WATER IGR 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.