Correlation Between Mitsubishi Materials and Westlake Chemical

Can any of the company-specific risk be diversified away by investing in both Mitsubishi Materials and Westlake Chemical 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 Mitsubishi Materials and Westlake Chemical into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Mitsubishi Materials and Westlake Chemical, you can compare the effects of market volatilities on Mitsubishi Materials and Westlake Chemical 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 Mitsubishi Materials with a short position of Westlake Chemical. Check out your portfolio center. Please also check ongoing floating volatility patterns of Mitsubishi Materials and Westlake Chemical.

Diversification Opportunities for Mitsubishi Materials and Westlake Chemical

0.85

Correlation Coefficient

Mitsubishi Materials  Westlake Chemical

Very poor diversification

The 3 months correlation between Mitsubishi and Westlake is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Mitsubishi Materials and Westlake Chemical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Westlake Chemical and Mitsubishi Materials 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 Mitsubishi Materials are associated (or correlated) with Westlake Chemical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Westlake Chemical has no effect on the direction of Mitsubishi Materials i.e., Mitsubishi Materials and Westlake Chemical go up and down completely randomly.

Pair Corralation between Mitsubishi Materials and Westlake Chemical

Assuming the 90 days trading horizon Mitsubishi Materials is expected to generate 0.94 times more return on investment than Westlake Chemical. However, Mitsubishi Materials is 1.06 times less risky than Westlake Chemical. It trades about 0.01 of its potential returns per unit of risk. Westlake Chemical is currently generating about -0.02 per unit of risk. If you would invest  1,540  in Mitsubishi Materials on September 5, 2024 and sell it today you would earn a total of  0.00  from holding Mitsubishi Materials or generate 0.0% return on investment over 90 days.

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

Mitsubishi Materials  vs.  Westlake Chemical

Mitsubishi Materials

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Mitsubishi Materials has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound forward-looking indicators, Mitsubishi Materials is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Westlake Chemical

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Westlake Chemical has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Westlake Chemical is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Mitsubishi Materials and Westlake Chemical

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

The idea behind Mitsubishi Materials and Westlake Chemical 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.

Check out your portfolio center.

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 CEOs Directory module to screen CEOs from public companies around the world.