Correlation Between GM Breweries and Sumitomo Chemical

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

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

Diversification Opportunities for GM Breweries and Sumitomo Chemical

0.5

Correlation Coefficient

GM Breweries  Sumitomo Chemical

Very weak diversification

The 3 months correlation between GMBREW and Sumitomo is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding GM Breweries Limited 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 GM Breweries 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 GM Breweries Limited 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 GM Breweries i.e., GM Breweries and Sumitomo Chemical go up and down completely randomly.

Pair Corralation between GM Breweries and Sumitomo Chemical

Assuming the 90 days trading horizon GM Breweries is expected to generate 5.2 times less return on investment than Sumitomo Chemical. But when comparing it to its historical volatility, GM Breweries Limited is 1.03 times less risky than Sumitomo Chemical. It trades about 0.01 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  49,636  in Sumitomo Chemical India on October 8, 2024 and sell it today you would earn a total of  4,059  from holding Sumitomo Chemical India or generate 8.18% return on investment over 90 days.

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

GM Breweries Limited  vs.  Sumitomo Chemical India

GM Breweries Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days GM Breweries Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, GM Breweries is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the 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 newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with GM Breweries and Sumitomo Chemical

The main advantage of trading using opposite GM Breweries and Sumitomo Chemical positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM Breweries 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 GM Breweries Limited 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.