Correlation Between City Union and Sumitomo Chemical

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

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

Diversification Opportunities for City Union and Sumitomo Chemical

0.64

Correlation Coefficient

City Union  Sumitomo Chemical

Poor diversification

The 3 months correlation between City and Sumitomo is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding City Union Bank 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 City Union 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 City Union Bank 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 City Union i.e., City Union and Sumitomo Chemical go up and down completely randomly.

Pair Corralation between City Union and Sumitomo Chemical

Assuming the 90 days trading horizon City Union Bank is expected to under-perform the Sumitomo Chemical. But the stock apears to be less risky and, when comparing its historical volatility, City Union Bank is 1.16 times less risky than Sumitomo Chemical. The stock trades about -0.07 of its potential returns per unit of risk. The Sumitomo Chemical India is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  52,715  in Sumitomo Chemical India on December 24, 2024 and sell it today you would earn a total of  815.00  from holding Sumitomo Chemical India or generate 1.55% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.41%
Values	Daily Returns

City Union Bank  vs.  Sumitomo Chemical India

City Union Bank

Risk-Adjusted Performance

Very Weak

Over the last 90 days City Union Bank has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's technical and fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Sumitomo Chemical India

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Sumitomo Chemical India are ranked lower than 1 (%) 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 latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with City Union and Sumitomo Chemical

The main advantage of trading using opposite City Union and Sumitomo Chemical positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if City Union 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 City Union Bank 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.

Check out your portfolio center.

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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.