Correlation Between Shin Etsu and Air Products

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

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

Diversification Opportunities for Shin Etsu and Air Products

-0.35

Correlation Coefficient

Shin Etsu  Air Products

Very good diversification

The 3 months correlation between Shin and Air is -0.35. Overlapping area represents the amount of risk that can be diversified away by holding Shin Etsu Chemical Co and Air Products and in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Air Products and Shin Etsu 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 Shin Etsu Chemical Co are associated (or correlated) with Air Products. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Air Products has no effect on the direction of Shin Etsu i.e., Shin Etsu and Air Products go up and down completely randomly.

Pair Corralation between Shin Etsu and Air Products

Assuming the 90 days horizon Shin Etsu Chemical Co is expected to generate 1.38 times more return on investment than Air Products. However, Shin Etsu is 1.38 times more volatile than Air Products and. It trades about 0.03 of its potential returns per unit of risk. Air Products and is currently generating about 0.01 per unit of risk. If you would invest  2,357  in Shin Etsu Chemical Co on September 22, 2024 and sell it today you would earn a total of  701.00  from holding Shin Etsu Chemical Co or generate 29.74% return on investment over 90 days.

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

Shin Etsu Chemical Co  vs.  Air Products and

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.

Air Products

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Air Products and are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Air Products may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Shin Etsu and Air Products

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

The idea behind Shin Etsu Chemical Co and Air Products and 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.