Correlation Between Westlake Chemical and Shin-Etsu Chemical

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

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

Diversification Opportunities for Westlake Chemical and Shin-Etsu Chemical

0.78

Correlation Coefficient

Westlake Chemical  Shin-Etsu Chemical

Poor diversification

The 3 months correlation between Westlake and Shin-Etsu is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Westlake Chemical and Shin Etsu Chemical Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shin Etsu Chemical and Westlake Chemical 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 Westlake Chemical are associated (or correlated) with Shin-Etsu Chemical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shin Etsu Chemical has no effect on the direction of Westlake Chemical i.e., Westlake Chemical and Shin-Etsu Chemical go up and down completely randomly.

Pair Corralation between Westlake Chemical and Shin-Etsu Chemical

Assuming the 90 days horizon Westlake Chemical is expected to generate 12.02 times less return on investment than Shin-Etsu Chemical. But when comparing it to its historical volatility, Westlake Chemical is 1.05 times less risky than Shin-Etsu Chemical. It trades about 0.02 of its potential returns per unit of risk. Shin Etsu Chemical Co is currently generating about 0.22 of returns per unit of risk over similar time horizon. If you would invest  3,314  in Shin Etsu Chemical Co on September 5, 2024 and sell it today you would earn a total of  286.00  from holding Shin Etsu Chemical Co or generate 8.63% return on investment over 90 days.

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

Westlake Chemical  vs.  Shin Etsu Chemical Co

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.

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 nearly stable basic indicators, Shin-Etsu 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 Westlake Chemical and Shin-Etsu Chemical

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

The idea behind Westlake Chemical and Shin Etsu Chemical Co 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.