Correlation Between Sumitomo Chemical and Suntory Beverage

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

Diversification Opportunities for Sumitomo Chemical and Suntory Beverage

0.79

Correlation Coefficient

Sumitomo Chemical  Suntory Beverage

Poor diversification

The 3 months correlation between Sumitomo and Suntory is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Sumitomo Chemical Co and Suntory Beverage Food in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Suntory Beverage Food 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 Suntory Beverage. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Suntory Beverage Food has no effect on the direction of Sumitomo Chemical i.e., Sumitomo Chemical and Suntory Beverage go up and down completely randomly.

Pair Corralation between Sumitomo Chemical and Suntory Beverage

Assuming the 90 days horizon Sumitomo Chemical Co is expected to generate 1.54 times more return on investment than Suntory Beverage. However, Sumitomo Chemical is 1.54 times more volatile than Suntory Beverage Food. It trades about 0.11 of its potential returns per unit of risk. Suntory Beverage Food is currently generating about 0.05 per unit of risk. If you would invest  1,095  in Sumitomo Chemical Co on December 30, 2024 and sell it today you would earn a total of  137.00  from holding Sumitomo Chemical Co or generate 12.51% return on investment over 90 days.

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

Sumitomo Chemical Co  vs.  Suntory Beverage Food

Sumitomo Chemical

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Sumitomo Chemical Co are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of fairly fragile primary indicators, Sumitomo Chemical showed solid returns over the last few months and may actually be approaching a breakup point.

Suntory Beverage Food

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Suntory Beverage Food are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong technical and fundamental indicators, Suntory Beverage is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Sumitomo Chemical and Suntory Beverage

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

The idea behind Sumitomo Chemical Co and Suntory Beverage Food 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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.