Correlation Between Sumitomo Chemical and Varun Beverages

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

Diversification Opportunities for Sumitomo Chemical and Varun Beverages

0.71

Correlation Coefficient

Sumitomo Chemical  Varun Beverages

Poor diversification

The 3 months correlation between Sumitomo and Varun is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Sumitomo Chemical India and Varun Beverages Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Varun Beverages 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 Varun Beverages. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Varun Beverages has no effect on the direction of Sumitomo Chemical i.e., Sumitomo Chemical and Varun Beverages go up and down completely randomly.

Pair Corralation between Sumitomo Chemical and Varun Beverages

Assuming the 90 days trading horizon Sumitomo Chemical India is expected to generate 0.75 times more return on investment than Varun Beverages. However, Sumitomo Chemical India is 1.33 times less risky than Varun Beverages. It trades about 0.02 of its potential returns per unit of risk. Varun Beverages Limited is currently generating about -0.08 per unit of risk. If you would invest  52,660  in Sumitomo Chemical India on December 25, 2024 and sell it today you would earn a total of  870.00  from holding Sumitomo Chemical India or generate 1.65% 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.  Varun Beverages 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 1 (%) 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.

Varun Beverages

Risk-Adjusted Performance

Very Weak

Over the last 90 days Varun Beverages Limited 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 technical and fundamental indicators remain rather sound which may send shares a bit higher in April 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with Sumitomo Chemical and Varun Beverages

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

The idea behind Sumitomo Chemical India and Varun Beverages 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 Funds Screener module to find actively-traded funds from around the world traded on over 30 global exchanges.