Correlation Between Shionogi and Essential Energy

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

By analyzing existing cross correlation between Shionogi Co and Essential Energy Services, you can compare the effects of market volatilities on Shionogi and Essential Energy 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 Shionogi with a short position of Essential Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Shionogi and Essential Energy.

Diversification Opportunities for Shionogi and Essential Energy

-0.6

Correlation Coefficient

Shionogi  Essential Energy

Excellent diversification

The 3 months correlation between Shionogi and Essential is -0.6. Overlapping area represents the amount of risk that can be diversified away by holding Shionogi Co and Essential Energy Services in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Essential Energy Services and Shionogi 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 Shionogi Co are associated (or correlated) with Essential Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Essential Energy Services has no effect on the direction of Shionogi i.e., Shionogi and Essential Energy go up and down completely randomly.

Pair Corralation between Shionogi and Essential Energy

Assuming the 90 days horizon Shionogi Co is expected to generate 24.99 times more return on investment than Essential Energy. However, Shionogi is 24.99 times more volatile than Essential Energy Services. It trades about 0.2 of its potential returns per unit of risk. Essential Energy Services is currently generating about 0.02 per unit of risk. If you would invest  1,502  in Shionogi Co on September 13, 2024 and sell it today you would lose (92.00) from holding Shionogi Co or give up 6.13% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	45.31%
Values	Daily Returns

Shionogi Co  vs.  Essential Energy Services

Shionogi

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Shionogi Co are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Shionogi reported solid returns over the last few months and may actually be approaching a breakup point.

Essential Energy Services

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Shionogi and Essential Energy

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

The idea behind Shionogi Co and Essential Energy Services 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.