Correlation Between Chambal Fertilizers and Sumitomo Chemical

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

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

Diversification Opportunities for Chambal Fertilizers and Sumitomo Chemical

0.21

Correlation Coefficient

Chambal Fertilizers  Sumitomo Chemical

Modest diversification

The 3 months correlation between Chambal and Sumitomo is 0.21. Overlapping area represents the amount of risk that can be diversified away by holding Chambal Fertilizers Chemicals 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 Chambal Fertilizers 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 Chambal Fertilizers Chemicals 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 Chambal Fertilizers i.e., Chambal Fertilizers and Sumitomo Chemical go up and down completely randomly.

Pair Corralation between Chambal Fertilizers and Sumitomo Chemical

Assuming the 90 days trading horizon Chambal Fertilizers is expected to generate 2.56 times less return on investment than Sumitomo Chemical. But when comparing it to its historical volatility, Chambal Fertilizers Chemicals is 1.12 times less risky than Sumitomo Chemical. It trades about 0.02 of its potential returns per unit of risk. Sumitomo Chemical India is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  47,989  in Sumitomo Chemical India on September 23, 2024 and sell it today you would earn a total of  4,581  from holding Sumitomo Chemical India or generate 9.55% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	99.21%
Values	Daily Returns

Chambal Fertilizers Chemicals  vs.  Sumitomo Chemical India

Chambal Fertilizers

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Chambal Fertilizers Chemicals are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain technical and fundamental indicators, Chambal Fertilizers may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Sumitomo Chemical India

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Sumitomo Chemical India has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical indicators, Sumitomo Chemical is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Chambal Fertilizers and Sumitomo Chemical

The main advantage of trading using opposite Chambal Fertilizers and Sumitomo Chemical positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Chambal Fertilizers 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 Chambal Fertilizers Chemicals 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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.