Correlation Between JSW Steel and Sumitomo Chemical

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

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

Diversification Opportunities for JSW Steel and Sumitomo Chemical

0.26

Correlation Coefficient

JSW Steel  Sumitomo Chemical

Modest diversification

The 3 months correlation between JSW and Sumitomo is 0.26. Overlapping area represents the amount of risk that can be diversified away by holding JSW Steel 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 JSW Steel 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 JSW Steel 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 JSW Steel i.e., JSW Steel and Sumitomo Chemical go up and down completely randomly.

Pair Corralation between JSW Steel and Sumitomo Chemical

Assuming the 90 days trading horizon JSW Steel Limited is expected to generate 0.81 times more return on investment than Sumitomo Chemical. However, JSW Steel Limited is 1.24 times less risky than Sumitomo Chemical. It trades about -0.14 of its potential returns per unit of risk. Sumitomo Chemical India is currently generating about -0.24 per unit of risk. If you would invest  95,330  in JSW Steel Limited on September 24, 2024 and sell it today you would lose (3,595) from holding JSW Steel Limited or give up 3.77% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	95.45%
Values	Daily Returns

JSW Steel Limited  vs.  Sumitomo Chemical India

JSW Steel Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days JSW Steel Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain 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

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 latest uncertain performance, the Stock's technical indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Pair Trading with JSW Steel and Sumitomo Chemical

The main advantage of trading using opposite JSW Steel and Sumitomo Chemical positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if JSW Steel 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 JSW Steel 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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.