Correlation Between Sumitomo Chemical and Solvay SA

Can any of the company-specific risk be diversified away by investing in both Sumitomo Chemical and Solvay SA 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 Solvay SA 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 Solvay SA ADR, you can compare the effects of market volatilities on Sumitomo Chemical and Solvay SA 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 Solvay SA. Check out your portfolio center. Please also check ongoing floating volatility patterns of Sumitomo Chemical and Solvay SA.

Diversification Opportunities for Sumitomo Chemical and Solvay SA

0.87

Correlation Coefficient

Sumitomo Chemical  Solvay SA

Very poor diversification

The 3 months correlation between Sumitomo and Solvay is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Sumitomo Chemical Co and Solvay SA ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Solvay SA ADR 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 Solvay SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Solvay SA ADR has no effect on the direction of Sumitomo Chemical i.e., Sumitomo Chemical and Solvay SA go up and down completely randomly.

Pair Corralation between Sumitomo Chemical and Solvay SA

Assuming the 90 days horizon Sumitomo Chemical Co is expected to generate 0.69 times more return on investment than Solvay SA. However, Sumitomo Chemical Co is 1.44 times less risky than Solvay SA. It trades about -0.31 of its potential returns per unit of risk. Solvay SA ADR is currently generating about -0.37 per unit of risk. If you would invest  1,172  in Sumitomo Chemical Co on October 9, 2024 and sell it today you would lose (72.00) from holding Sumitomo Chemical Co or give up 6.14% of portfolio value over 90 days.

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

Sumitomo Chemical Co  vs.  Solvay SA ADR

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 February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Solvay SA ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Solvay SA ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of abnormal performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Sumitomo Chemical and Solvay SA

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

The idea behind Sumitomo Chemical Co and Solvay SA ADR 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.