Correlation Between Dow and Sumitomo Chemical

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

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

Diversification Opportunities for Dow and Sumitomo Chemical

-0.73

Correlation Coefficient

Dow  Sumitomo Chemical

Pay attention - limited upside

The 3 months correlation between Dow and Sumitomo is -0.73. Overlapping area represents the amount of risk that can be diversified away by holding Dow Inc and Sumitomo Chemical Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sumitomo Chemical and Dow 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 Dow Inc 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 has no effect on the direction of Dow i.e., Dow and Sumitomo Chemical go up and down completely randomly.

Pair Corralation between Dow and Sumitomo Chemical

Considering the 90-day investment horizon Dow Inc is expected to under-perform the Sumitomo Chemical. In addition to that, Dow is 1.04 times more volatile than Sumitomo Chemical Co. It trades about -0.09 of its total potential returns per unit of risk. Sumitomo Chemical Co is currently generating about 0.11 per unit of volatility. If you would invest  1,095  in Sumitomo Chemical Co on December 28, 2024 and sell it today you would earn a total of  141.00  from holding Sumitomo Chemical Co or generate 12.88% return on investment over 90 days.

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

Dow Inc  vs.  Sumitomo Chemical Co

Dow Inc

Risk-Adjusted Performance

Very Weak

Over the last 90 days Dow Inc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unfluctuating performance, the Stock's basic indicators remain stable and the latest fuss on Wall Street may also be a sign of long-term gains for the venture sophisticated investors.

Sumitomo Chemical

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Sumitomo Chemical Co are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of fairly fragile primary indicators, Sumitomo Chemical showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Dow and Sumitomo Chemical

The main advantage of trading using opposite Dow and Sumitomo Chemical positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dow 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 Dow Inc and Sumitomo Chemical Co 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.