Correlation Between Mitsui Chemicals and United States

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

By analyzing existing cross correlation between Mitsui Chemicals and United States Steel, you can compare the effects of market volatilities on Mitsui Chemicals and United States 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 United States. Check out your portfolio center. Please also check ongoing floating volatility patterns of Mitsui Chemicals and United States.

Diversification Opportunities for Mitsui Chemicals and United States

-0.68

Correlation Coefficient

Mitsui Chemicals  United States

Excellent diversification

The 3 months correlation between Mitsui and United is -0.68. Overlapping area represents the amount of risk that can be diversified away by holding Mitsui Chemicals and United States Steel in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on United States Steel 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 United States. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of United States Steel has no effect on the direction of Mitsui Chemicals i.e., Mitsui Chemicals and United States go up and down completely randomly.

Pair Corralation between Mitsui Chemicals and United States

Assuming the 90 days trading horizon Mitsui Chemicals is expected to generate 4.7 times less return on investment than United States. But when comparing it to its historical volatility, Mitsui Chemicals is 1.64 times less risky than United States. It trades about 0.02 of its potential returns per unit of risk. United States Steel is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  2,469  in United States Steel on August 30, 2024 and sell it today you would earn a total of  1,333  from holding United States Steel or generate 53.99% return on investment over 90 days.

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

Mitsui Chemicals  vs.  United States Steel

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 uncertain 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.

United States Steel

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in United States Steel are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, United States may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with Mitsui Chemicals and United States

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

The idea behind Mitsui Chemicals and United States Steel 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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.