Correlation Between Action Construction and Sumitomo Chemical

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

By analyzing existing cross correlation between Action Construction Equipment and Sumitomo Chemical India, you can compare the effects of market volatilities on Action Construction and Sumitomo 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 Action Construction with a short position of Sumitomo Chemical. Check out your portfolio center. Please also check ongoing floating volatility patterns of Action Construction and Sumitomo Chemical.

Diversification Opportunities for Action Construction and Sumitomo Chemical

0.42

Correlation Coefficient

Action Construction  Sumitomo Chemical

Very weak diversification

The 3 months correlation between Action and Sumitomo is 0.42. Overlapping area represents the amount of risk that can be diversified away by holding Action Construction Equipment and Sumitomo Chemical India in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sumitomo Chemical India and Action Construction 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 Action Construction Equipment are associated (or correlated) with Sumitomo Chemical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sumitomo Chemical India has no effect on the direction of Action Construction i.e., Action Construction and Sumitomo Chemical go up and down completely randomly.

Pair Corralation between Action Construction and Sumitomo Chemical

Assuming the 90 days trading horizon Action Construction is expected to generate 2.02 times less return on investment than Sumitomo Chemical. But when comparing it to its historical volatility, Action Construction Equipment is 1.17 times less risky than Sumitomo Chemical. It trades about 0.03 of its potential returns per unit of risk. Sumitomo Chemical India is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  51,245  in Sumitomo Chemical India on September 2, 2024 and sell it today you would earn a total of  3,920  from holding Sumitomo Chemical India or generate 7.65% return on investment over 90 days.

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

Action Construction Equipment  vs.  Sumitomo Chemical India

Action Construction

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Action Construction Equipment are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound technical and fundamental indicators, Action Construction is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Sumitomo Chemical India

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Sumitomo Chemical India are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of rather inconsistent technical indicators, Sumitomo Chemical may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Action Construction and Sumitomo Chemical

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

The idea behind Action Construction Equipment and Sumitomo Chemical India 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 CEOs Directory module to screen CEOs from public companies around the world.