Correlation Between Mitsui Chemicals and Canadian Utilities

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

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

Diversification Opportunities for Mitsui Chemicals and Canadian Utilities

-0.44

Correlation Coefficient

Mitsui Chemicals  Canadian Utilities

Very good diversification

The 3 months correlation between Mitsui and Canadian is -0.44. Overlapping area represents the amount of risk that can be diversified away by holding Mitsui Chemicals and Canadian Utilities Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Canadian Utilities and Mitsui Chemicals 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 Mitsui Chemicals are associated (or correlated) with Canadian Utilities. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Canadian Utilities has no effect on the direction of Mitsui Chemicals i.e., Mitsui Chemicals and Canadian Utilities go up and down completely randomly.

Pair Corralation between Mitsui Chemicals and Canadian Utilities

Assuming the 90 days trading horizon Mitsui Chemicals is expected to under-perform the Canadian Utilities. In addition to that, Mitsui Chemicals is 1.39 times more volatile than Canadian Utilities Limited. It trades about -0.1 of its total potential returns per unit of risk. Canadian Utilities Limited is currently generating about 0.11 per unit of volatility. If you would invest  2,206  in Canadian Utilities Limited on September 1, 2024 and sell it today you would earn a total of  193.00  from holding Canadian Utilities Limited or generate 8.75% return on investment over 90 days.

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

Mitsui Chemicals  vs.  Canadian Utilities Limited

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 latest fragile performance, the Stock's forward indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Canadian Utilities

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Canadian Utilities Limited are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady basic indicators, Canadian Utilities may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with Mitsui Chemicals and Canadian Utilities

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

The idea behind Mitsui Chemicals and Canadian Utilities Limited 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.