Correlation Between Agarwal Industrial and Sumitomo Chemical

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

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

Diversification Opportunities for Agarwal Industrial and Sumitomo Chemical

0.02

Correlation Coefficient

Agarwal Industrial  Sumitomo Chemical

Significant diversification

The 3 months correlation between Agarwal and Sumitomo is 0.02. Overlapping area represents the amount of risk that can be diversified away by holding Agarwal Industrial 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 Agarwal Industrial 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 Agarwal Industrial 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 Agarwal Industrial i.e., Agarwal Industrial and Sumitomo Chemical go up and down completely randomly.

Pair Corralation between Agarwal Industrial and Sumitomo Chemical

Assuming the 90 days trading horizon Agarwal Industrial is expected to generate 1.19 times more return on investment than Sumitomo Chemical. However, Agarwal Industrial is 1.19 times more volatile than Sumitomo Chemical India. It trades about 0.05 of its potential returns per unit of risk. Sumitomo Chemical India is currently generating about 0.06 per unit of risk. If you would invest  95,239  in Agarwal Industrial on October 6, 2024 and sell it today you would earn a total of  31,596  from holding Agarwal Industrial or generate 33.18% return on investment over 90 days.

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

Agarwal Industrial  vs.  Sumitomo Chemical India

Agarwal Industrial

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Agarwal Industrial are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain forward indicators, Agarwal Industrial exhibited solid returns over the last few months and may actually be approaching a breakup point.

Sumitomo Chemical India

Risk-Adjusted Performance

2 of 100

Weak

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

Pair Trading with Agarwal Industrial and Sumitomo Chemical

The main advantage of trading using opposite Agarwal Industrial and Sumitomo Chemical positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Agarwal Industrial 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 Agarwal Industrial 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.