Correlation Between Gujarat Narmada and Sumitomo Chemical

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

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

Diversification Opportunities for Gujarat Narmada and Sumitomo Chemical

0.62

Correlation Coefficient

Gujarat Narmada  Sumitomo Chemical

Poor diversification

The 3 months correlation between Gujarat and Sumitomo is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding Gujarat Narmada Valley 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 Gujarat Narmada 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 Gujarat Narmada Valley 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 Gujarat Narmada i.e., Gujarat Narmada and Sumitomo Chemical go up and down completely randomly.

Pair Corralation between Gujarat Narmada and Sumitomo Chemical

Assuming the 90 days trading horizon Gujarat Narmada Valley is expected to generate 0.95 times more return on investment than Sumitomo Chemical. However, Gujarat Narmada Valley is 1.05 times less risky than Sumitomo Chemical. It trades about -0.04 of its potential returns per unit of risk. Sumitomo Chemical India is currently generating about -0.08 per unit of risk. If you would invest  59,305  in Gujarat Narmada Valley on September 27, 2024 and sell it today you would lose (1,055) from holding Gujarat Narmada Valley or give up 1.78% of portfolio value over 90 days.

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

Gujarat Narmada Valley  vs.  Sumitomo Chemical India

Gujarat Narmada Valley

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Gujarat Narmada Valley has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in January 2025. The newest uproar may also be a sign of mid-term up-swing for the firm 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 newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Gujarat Narmada and Sumitomo Chemical

The main advantage of trading using opposite Gujarat Narmada and Sumitomo Chemical positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Gujarat Narmada 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 Gujarat Narmada Valley 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.