Correlation Between Kothari Petrochemicals and Sumitomo Chemical

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

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

Diversification Opportunities for Kothari Petrochemicals and Sumitomo Chemical

0.76

Correlation Coefficient

Kothari Petrochemicals  Sumitomo Chemical

Poor diversification

The 3 months correlation between Kothari and Sumitomo is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Kothari Petrochemicals 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 Kothari Petrochemicals 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 Kothari Petrochemicals 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 Kothari Petrochemicals i.e., Kothari Petrochemicals and Sumitomo Chemical go up and down completely randomly.

Pair Corralation between Kothari Petrochemicals and Sumitomo Chemical

Assuming the 90 days trading horizon Kothari Petrochemicals Limited is expected to under-perform the Sumitomo Chemical. In addition to that, Kothari Petrochemicals is 1.09 times more volatile than Sumitomo Chemical India. It trades about -0.06 of its total potential returns per unit of risk. Sumitomo Chemical India is currently generating about -0.02 per unit of volatility. If you would invest  51,765  in Sumitomo Chemical India on October 23, 2024 and sell it today you would lose (2,135) from holding Sumitomo Chemical India or give up 4.12% of portfolio value over 90 days.

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

Kothari Petrochemicals Limited  vs.  Sumitomo Chemical India

Kothari Petrochemicals

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Kothari Petrochemicals Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest uncertain performance, the Stock's basic indicators remain strong and the recent confusion on Wall Street may also be a sign of long-lasting gains for the firm traders.

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 current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Kothari Petrochemicals and Sumitomo Chemical

The main advantage of trading using opposite Kothari Petrochemicals and Sumitomo Chemical positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Kothari Petrochemicals 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 Kothari Petrochemicals 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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.