Correlation Between Max Financial and Sumitomo Chemical

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

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

Diversification Opportunities for Max Financial and Sumitomo Chemical

0.22

Correlation Coefficient

Max Financial  Sumitomo Chemical

Modest diversification

The 3 months correlation between Max and Sumitomo is 0.22. Overlapping area represents the amount of risk that can be diversified away by holding Max Financial Services 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 Max Financial 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 Max Financial Services 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 Max Financial i.e., Max Financial and Sumitomo Chemical go up and down completely randomly.

Pair Corralation between Max Financial and Sumitomo Chemical

Assuming the 90 days trading horizon Max Financial Services is expected to generate 0.88 times more return on investment than Sumitomo Chemical. However, Max Financial Services is 1.13 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 0.02 per unit of risk. If you would invest  83,955  in Max Financial Services on October 10, 2024 and sell it today you would earn a total of  27,190  from holding Max Financial Services or generate 32.39% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	99.59%
Values	Daily Returns

Max Financial Services  vs.  Sumitomo Chemical India

Max Financial Services

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Max Financial Services has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Max Financial is not utilizing all of its potentials. The latest 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 latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Max Financial and Sumitomo Chemical

The main advantage of trading using opposite Max Financial and Sumitomo Chemical positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Max Financial 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 Max Financial Services 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.

Check out your portfolio center.

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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.