Correlation Between Sumitomo Chemical and Aarey Drugs

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

By analyzing existing cross correlation between Sumitomo Chemical India and Aarey Drugs Pharmaceuticals, you can compare the effects of market volatilities on Sumitomo Chemical and Aarey Drugs 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 Aarey Drugs. Check out your portfolio center. Please also check ongoing floating volatility patterns of Sumitomo Chemical and Aarey Drugs.

Diversification Opportunities for Sumitomo Chemical and Aarey Drugs

0.72

Correlation Coefficient

Sumitomo Chemical  Aarey Drugs

Poor diversification

The 3 months correlation between Sumitomo and Aarey is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Sumitomo Chemical India and Aarey Drugs Pharmaceuticals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aarey Drugs Pharmace 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 India are associated (or correlated) with Aarey Drugs. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aarey Drugs Pharmace has no effect on the direction of Sumitomo Chemical i.e., Sumitomo Chemical and Aarey Drugs go up and down completely randomly.

Pair Corralation between Sumitomo Chemical and Aarey Drugs

Assuming the 90 days trading horizon Sumitomo Chemical India is expected to generate 1.1 times more return on investment than Aarey Drugs. However, Sumitomo Chemical is 1.1 times more volatile than Aarey Drugs Pharmaceuticals. It trades about -0.02 of its potential returns per unit of risk. Aarey Drugs Pharmaceuticals is currently generating about -0.11 per unit of risk. If you would invest  51,595  in Sumitomo Chemical India on October 24, 2024 and sell it today you would lose (2,475) from holding Sumitomo Chemical India or give up 4.8% of portfolio value over 90 days.

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

Sumitomo Chemical India  vs.  Aarey Drugs Pharmaceuticals

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

Aarey Drugs Pharmace

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Aarey Drugs Pharmaceuticals has generated negative risk-adjusted returns adding no value to investors with long positions. Even with weak performance in the last few months, the Stock's basic indicators remain relatively invariable which may send shares a bit higher in February 2025. The latest agitation may also be a sign of long-running up-swing for the enterprise retail investors.

Pair Trading with Sumitomo Chemical and Aarey Drugs

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

The idea behind Sumitomo Chemical India and Aarey Drugs Pharmaceuticals 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 Stock Tickers module to use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites.