Correlation Between Shin Etsu and BASF SE

Can any of the company-specific risk be diversified away by investing in both Shin Etsu and BASF SE 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 BASF SE 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 BASF SE ADR, you can compare the effects of market volatilities on Shin Etsu and BASF SE 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 BASF SE. Check out your portfolio center. Please also check ongoing floating volatility patterns of Shin Etsu and BASF SE.

Diversification Opportunities for Shin Etsu and BASF SE

0.83

Correlation Coefficient

Shin Etsu  BASF SE

Very poor diversification

The 3 months correlation between Shin and BASF is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Shin Etsu Chemical Co and BASF SE ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BASF SE ADR 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 BASF SE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BASF SE ADR has no effect on the direction of Shin Etsu i.e., Shin Etsu and BASF SE go up and down completely randomly.

Pair Corralation between Shin Etsu and BASF SE

Assuming the 90 days horizon Shin Etsu Chemical Co is expected to generate 1.23 times more return on investment than BASF SE. However, Shin Etsu is 1.23 times more volatile than BASF SE ADR. It trades about 0.04 of its potential returns per unit of risk. BASF SE ADR is currently generating about 0.01 per unit of risk. If you would invest  1,540  in Shin Etsu Chemical Co on September 12, 2024 and sell it today you would earn a total of  285.00  from holding Shin Etsu Chemical Co or generate 18.51% return on investment over 90 days.

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

Shin Etsu Chemical Co  vs.  BASF SE ADR

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. In spite of latest fragile performance, the Stock's fundamental indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

BASF SE ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days BASF SE ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong technical and fundamental indicators, BASF SE is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Shin Etsu and BASF SE

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

The idea behind Shin Etsu Chemical Co and BASF SE ADR 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.