Correlation Between Sumitomo Chemical and Kuraray

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

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

Diversification Opportunities for Sumitomo Chemical and Kuraray

0.78

Correlation Coefficient

Sumitomo Chemical  Kuraray

Poor diversification

The 3 months correlation between Sumitomo and Kuraray is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Sumitomo Chemical Co and Kuraray Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kuraray and Sumitomo Chemical 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 Sumitomo Chemical Co are associated (or correlated) with Kuraray. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kuraray has no effect on the direction of Sumitomo Chemical i.e., Sumitomo Chemical and Kuraray go up and down completely randomly.

Pair Corralation between Sumitomo Chemical and Kuraray

Assuming the 90 days horizon Sumitomo Chemical Co is expected to under-perform the Kuraray. But the pink sheet apears to be less risky and, when comparing its historical volatility, Sumitomo Chemical Co is 1.62 times less risky than Kuraray. The pink sheet trades about -0.29 of its potential returns per unit of risk. The Kuraray Co is currently generating about -0.18 of returns per unit of risk over similar time horizon. If you would invest  4,143  in Kuraray Co on August 31, 2024 and sell it today you would lose (468.00) from holding Kuraray Co or give up 11.3% of portfolio value over 90 days.

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

Sumitomo Chemical Co  vs.  Kuraray Co

Sumitomo Chemical

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Sumitomo Chemical Co has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fragile performance in the last few months, the Stock's primary indicators remain fairly strong which may send shares a bit higher in December 2024. The current disturbance may also be a sign of long term up-swing for the company investors.

Kuraray

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Kuraray Co has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, Kuraray is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Sumitomo Chemical and Kuraray

The main advantage of trading using opposite Sumitomo Chemical and Kuraray positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Sumitomo Chemical position performs unexpectedly, Kuraray 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 Kuraray will offset losses from the drop in Kuraray's long position.

The idea behind Sumitomo Chemical Co and Kuraray Co 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 Portfolio Dashboard module to portfolio dashboard that provides centralized access to all your investments.