Correlation Between Sumitomo Chemical and Total Transport

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

Diversification Opportunities for Sumitomo Chemical and Total Transport

0.42

Correlation Coefficient

Sumitomo Chemical  Total Transport

Very weak diversification

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

Pair Corralation between Sumitomo Chemical and Total Transport

Assuming the 90 days trading horizon Sumitomo Chemical India is expected to generate 0.85 times more return on investment than Total Transport. However, Sumitomo Chemical India is 1.17 times less risky than Total Transport. It trades about 0.02 of its potential returns per unit of risk. Total Transport Systems is currently generating about -0.05 per unit of risk. If you would invest  48,408  in Sumitomo Chemical India on September 27, 2024 and sell it today you would earn a total of  4,307  from holding Sumitomo Chemical India or generate 8.9% return on investment over 90 days.

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

Sumitomo Chemical India  vs.  Total Transport Systems

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

Total Transport Systems

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Total Transport Systems has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of inconsistent performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in January 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with Sumitomo Chemical and Total Transport

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

The idea behind Sumitomo Chemical India and Total Transport Systems 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.