Correlation Between Sumitomo Chemical and Nahar Industrial

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

Diversification Opportunities for Sumitomo Chemical and Nahar Industrial

0.3

Correlation Coefficient

Sumitomo Chemical  Nahar Industrial

Weak diversification

The 3 months correlation between Sumitomo and Nahar is 0.3. Overlapping area represents the amount of risk that can be diversified away by holding Sumitomo Chemical India and Nahar Industrial Enterprises in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nahar Industrial Ent 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 Nahar Industrial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nahar Industrial Ent has no effect on the direction of Sumitomo Chemical i.e., Sumitomo Chemical and Nahar Industrial go up and down completely randomly.

Pair Corralation between Sumitomo Chemical and Nahar Industrial

Assuming the 90 days trading horizon Sumitomo Chemical India is expected to generate 0.75 times more return on investment than Nahar Industrial. However, Sumitomo Chemical India is 1.34 times less risky than Nahar Industrial. It trades about 0.04 of its potential returns per unit of risk. Nahar Industrial Enterprises is currently generating about 0.02 per unit of risk. If you would invest  40,805  in Sumitomo Chemical India on October 4, 2024 and sell it today you would earn a total of  12,465  from holding Sumitomo Chemical India or generate 30.55% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	99.45%
Values	Daily Returns

Sumitomo Chemical India  vs.  Nahar Industrial Enterprises

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

Nahar Industrial Ent

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Nahar Industrial Enterprises has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy fundamental indicators, Nahar Industrial 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 Nahar Industrial

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

The idea behind Sumitomo Chemical India and Nahar Industrial Enterprises 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.