Correlation Between Sumitomo Chemical and Hindcon Chemicals

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

Diversification Opportunities for Sumitomo Chemical and Hindcon Chemicals

0.37

Correlation Coefficient

Sumitomo Chemical  Hindcon Chemicals

Weak diversification

The 3 months correlation between Sumitomo and Hindcon is 0.37. Overlapping area represents the amount of risk that can be diversified away by holding Sumitomo Chemical India and Hindcon Chemicals Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hindcon Chemicals 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 Hindcon Chemicals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hindcon Chemicals has no effect on the direction of Sumitomo Chemical i.e., Sumitomo Chemical and Hindcon Chemicals go up and down completely randomly.

Pair Corralation between Sumitomo Chemical and Hindcon Chemicals

Assuming the 90 days trading horizon Sumitomo Chemical India is expected to generate 0.82 times more return on investment than Hindcon Chemicals. However, Sumitomo Chemical India is 1.22 times less risky than Hindcon Chemicals. It trades about 0.04 of its potential returns per unit of risk. Hindcon Chemicals Limited is currently generating about 0.01 per unit of risk. If you would invest  51,935  in Sumitomo Chemical India on September 4, 2024 and sell it today you would earn a total of  2,450  from holding Sumitomo Chemical India or generate 4.72% return on investment over 90 days.

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

Sumitomo Chemical India  vs.  Hindcon Chemicals Limited

Sumitomo Chemical India

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Sumitomo Chemical India are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather unfluctuating technical indicators, Sumitomo Chemical may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Hindcon Chemicals

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Hindcon Chemicals Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy fundamental indicators, Hindcon Chemicals is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Sumitomo Chemical and Hindcon Chemicals

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

The idea behind Sumitomo Chemical India and Hindcon Chemicals Limited 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 Transaction History module to view history of all your transactions and understand their impact on performance.