Correlation Between Sumitomo Chemical and NMDC

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

Diversification Opportunities for Sumitomo Chemical and NMDC

0.65

Correlation Coefficient

Sumitomo Chemical  NMDC

Poor diversification

The 3 months correlation between Sumitomo and NMDC is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Sumitomo Chemical India and NMDC Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NMDC Limited 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 NMDC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NMDC Limited has no effect on the direction of Sumitomo Chemical i.e., Sumitomo Chemical and NMDC go up and down completely randomly.

Pair Corralation between Sumitomo Chemical and NMDC

Assuming the 90 days trading horizon Sumitomo Chemical India is expected to generate 0.83 times more return on investment than NMDC. However, Sumitomo Chemical India is 1.21 times less risky than NMDC. It trades about 0.03 of its potential returns per unit of risk. NMDC Limited is currently generating about 0.02 per unit of risk. If you would invest  51,880  in Sumitomo Chemical India on December 27, 2024 and sell it today you would earn a total of  1,530  from holding Sumitomo Chemical India or generate 2.95% return on investment over 90 days.

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

Sumitomo Chemical India  vs.  NMDC Limited

Sumitomo Chemical India

Risk-Adjusted Performance

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 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.

NMDC Limited

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in NMDC Limited are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, NMDC is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Sumitomo Chemical and NMDC

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

The idea behind Sumitomo Chemical India and NMDC 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.

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 Financial Widgets module to easily integrated Macroaxis content with over 30 different plug-and-play financial widgets.