Correlation Between Sumitomo Chemical and Rashtriya Chemicals

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

Diversification Opportunities for Sumitomo Chemical and Rashtriya Chemicals

0.42

Correlation Coefficient

Sumitomo Chemical  Rashtriya Chemicals

Very weak diversification

The 3 months correlation between Sumitomo and Rashtriya is 0.42. Overlapping area represents the amount of risk that can be diversified away by holding Sumitomo Chemical India and Rashtriya Chemicals and in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rashtriya Chemicals and 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 Rashtriya Chemicals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Rashtriya Chemicals and has no effect on the direction of Sumitomo Chemical i.e., Sumitomo Chemical and Rashtriya Chemicals go up and down completely randomly.

Pair Corralation between Sumitomo Chemical and Rashtriya Chemicals

Assuming the 90 days trading horizon Sumitomo Chemical is expected to generate 2.79 times less return on investment than Rashtriya Chemicals. But when comparing it to its historical volatility, Sumitomo Chemical India is 1.39 times less risky than Rashtriya Chemicals. It trades about 0.02 of its potential returns per unit of risk. Rashtriya Chemicals and is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  11,934  in Rashtriya Chemicals and on October 5, 2024 and sell it today you would earn a total of  6,175  from holding Rashtriya Chemicals and or generate 51.74% 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.  Rashtriya Chemicals and

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.

Rashtriya Chemicals and

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Rashtriya Chemicals and are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak technical and fundamental indicators, Rashtriya Chemicals may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Sumitomo Chemical and Rashtriya Chemicals

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

The idea behind Sumitomo Chemical India and Rashtriya Chemicals and 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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..