Correlation Between Vulcan Energy and Mitsui Chemicals

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

By analyzing existing cross correlation between Vulcan Energy Resources and Mitsui Chemicals ADR, you can compare the effects of market volatilities on Vulcan Energy and Mitsui Chemicals 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 Vulcan Energy with a short position of Mitsui Chemicals. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vulcan Energy and Mitsui Chemicals.

Diversification Opportunities for Vulcan Energy and Mitsui Chemicals

-0.63

Correlation Coefficient

Vulcan Energy  Mitsui Chemicals

Excellent diversification

The 3 months correlation between Vulcan and Mitsui is -0.63. Overlapping area represents the amount of risk that can be diversified away by holding Vulcan Energy Resources and Mitsui Chemicals ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mitsui Chemicals ADR and Vulcan Energy 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 Vulcan Energy Resources are associated (or correlated) with Mitsui Chemicals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Mitsui Chemicals ADR has no effect on the direction of Vulcan Energy i.e., Vulcan Energy and Mitsui Chemicals go up and down completely randomly.

Pair Corralation between Vulcan Energy and Mitsui Chemicals

Assuming the 90 days horizon Vulcan Energy Resources is expected to under-perform the Mitsui Chemicals. But the pink sheet apears to be less risky and, when comparing its historical volatility, Vulcan Energy Resources is 1.11 times less risky than Mitsui Chemicals. The pink sheet trades about -0.4 of its potential returns per unit of risk. The Mitsui Chemicals ADR is currently generating about -0.04 of returns per unit of risk over similar time horizon. If you would invest  1,123  in Mitsui Chemicals ADR on September 28, 2024 and sell it today you would lose (93.00) from holding Mitsui Chemicals ADR or give up 8.28% of portfolio value over 90 days.

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

Vulcan Energy Resources  vs.  Mitsui Chemicals ADR

Vulcan Energy Resources

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Vulcan Energy Resources are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Vulcan Energy reported solid returns over the last few months and may actually be approaching a breakup point.

Mitsui Chemicals ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Mitsui Chemicals ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Vulcan Energy and Mitsui Chemicals

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

The idea behind Vulcan Energy Resources and Mitsui Chemicals 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 Sync Your Broker module to sync your existing holdings, watchlists, positions or portfolios from thousands of online brokerage services, banks, investment account aggregators and robo-advisors..