Correlation Between Fertilizers and Sumitomo Chemical

Can any of the company-specific risk be diversified away by investing in both 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 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 Fertilizers and Chemicals and Sumitomo Chemical India, you can compare the effects of market volatilities on 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 Fertilizers with a short position of Sumitomo Chemical. Check out your portfolio center. Please also check ongoing floating volatility patterns of Fertilizers and Sumitomo Chemical.

Diversification Opportunities for Fertilizers and Sumitomo Chemical

0.39

Correlation Coefficient

Fertilizers  Sumitomo Chemical

Weak diversification

The 3 months correlation between Fertilizers and Sumitomo is 0.39. Overlapping area represents the amount of risk that can be diversified away by holding Fertilizers and 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 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 Fertilizers and 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 Fertilizers i.e., Fertilizers and Sumitomo Chemical go up and down completely randomly.

Pair Corralation between Fertilizers and Sumitomo Chemical

Assuming the 90 days trading horizon Fertilizers and Chemicals is expected to generate 1.13 times more return on investment than Sumitomo Chemical. However, Fertilizers is 1.13 times more volatile than Sumitomo Chemical India. It trades about -0.01 of its potential returns per unit of risk. Sumitomo Chemical India is currently generating about -0.03 per unit of risk. If you would invest  98,320  in Fertilizers and Chemicals on September 23, 2024 and sell it today you would lose (3,520) from holding Fertilizers and Chemicals or give up 3.58% of portfolio value over 90 days.

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

Fertilizers and Chemicals  vs.  Sumitomo Chemical India

Fertilizers and Chemicals

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Fertilizers and Chemicals has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Fertilizers is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

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 Fertilizers and Sumitomo Chemical

The main advantage of trading using opposite Fertilizers and Sumitomo Chemical positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if 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 Fertilizers and 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.