Correlation Between Shin Etsu and Westlake Chemical

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

Diversification Opportunities for Shin Etsu and Westlake Chemical

0.29

Correlation Coefficient

Shin Etsu  Westlake Chemical

Modest diversification

The 3 months correlation between Shin and Westlake is 0.29. Overlapping area represents the amount of risk that can be diversified away by holding Shin Etsu Chemical Co and Westlake Chemical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Westlake Chemical 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 Westlake Chemical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Westlake Chemical has no effect on the direction of Shin Etsu i.e., Shin Etsu and Westlake Chemical go up and down completely randomly.

Pair Corralation between Shin Etsu and Westlake Chemical

Assuming the 90 days horizon Shin Etsu Chemical Co is expected to under-perform the Westlake Chemical. In addition to that, Shin Etsu is 1.7 times more volatile than Westlake Chemical. It trades about -0.18 of its total potential returns per unit of risk. Westlake Chemical is currently generating about 0.0 per unit of volatility. If you would invest  14,999  in Westlake Chemical on January 25, 2024 and sell it today you would lose (9.00) from holding Westlake Chemical or give up 0.06% of portfolio value over 90 days.

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

Shin Etsu Chemical Co  vs.  Westlake Chemical

Shin Etsu Chemical

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Shin Etsu Chemical Co are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable fundamental indicators, Shin Etsu is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Westlake Chemical

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Westlake Chemical are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting essential indicators, Westlake Chemical may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Pair Trading with Shin Etsu and Westlake Chemical

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

The idea behind Shin Etsu Chemical Co and Westlake Chemical 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.