Correlation Between Sumitomo Chemical and Navneet Education

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

Diversification Opportunities for Sumitomo Chemical and Navneet Education

0.48

Correlation Coefficient

Sumitomo Chemical  Navneet Education

Very weak diversification

The 3 months correlation between Sumitomo and Navneet is 0.48. Overlapping area represents the amount of risk that can be diversified away by holding Sumitomo Chemical India and Navneet Education Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Navneet Education 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 Navneet Education. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Navneet Education has no effect on the direction of Sumitomo Chemical i.e., Sumitomo Chemical and Navneet Education go up and down completely randomly.

Pair Corralation between Sumitomo Chemical and Navneet Education

Assuming the 90 days trading horizon Sumitomo Chemical is expected to generate 1.91 times less return on investment than Navneet Education. But when comparing it to its historical volatility, Sumitomo Chemical India is 1.05 times less risky than Navneet Education. It trades about 0.02 of its potential returns per unit of risk. Navneet Education Limited is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  11,272  in Navneet Education Limited on October 4, 2024 and sell it today you would earn a total of  3,420  from holding Navneet Education Limited or generate 30.34% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	99.79%
Values	Daily Returns

Sumitomo Chemical India  vs.  Navneet Education Limited

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.

Navneet Education

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Navneet Education Limited are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound fundamental indicators, Navneet Education is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Sumitomo Chemical and Navneet Education

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

The idea behind Sumitomo Chemical India and Navneet Education 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.