Correlation Between Sumitomo Chemical and Power Finance

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

Diversification Opportunities for Sumitomo Chemical and Power Finance

0.26

Correlation Coefficient

Sumitomo Chemical  Power Finance

Modest diversification

The 3 months correlation between Sumitomo and Power is 0.26. Overlapping area represents the amount of risk that can be diversified away by holding Sumitomo Chemical India and Power Finance in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Power Finance 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 Power Finance. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Power Finance has no effect on the direction of Sumitomo Chemical i.e., Sumitomo Chemical and Power Finance go up and down completely randomly.

Pair Corralation between Sumitomo Chemical and Power Finance

Assuming the 90 days trading horizon Sumitomo Chemical India is expected to under-perform the Power Finance. But the stock apears to be less risky and, when comparing its historical volatility, Sumitomo Chemical India is 1.08 times less risky than Power Finance. The stock trades about -0.05 of its potential returns per unit of risk. The Power Finance is currently generating about 0.0 of returns per unit of risk over similar time horizon. If you would invest  46,755  in Power Finance on October 7, 2024 and sell it today you would lose (275.00) from holding Power Finance or give up 0.59% of portfolio value over 90 days.

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

Sumitomo Chemical India  vs.  Power Finance

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 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.

Power Finance

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Power Finance are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of rather conflicting technical and fundamental indicators, Power Finance may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Sumitomo Chemical and Power Finance

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

The idea behind Sumitomo Chemical India and Power Finance 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.