Correlation Between Solvay SA and Sumitomo Chemical

Can any of the company-specific risk be diversified away by investing in both Solvay SA and Sumitomo Chemical 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 Solvay SA and Sumitomo Chemical into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Solvay SA and Sumitomo Chemical Co, you can compare the effects of market volatilities on Solvay SA and Sumitomo Chemical 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 Solvay SA with a short position of Sumitomo Chemical. Check out your portfolio center. Please also check ongoing floating volatility patterns of Solvay SA and Sumitomo Chemical.

Diversification Opportunities for Solvay SA and Sumitomo Chemical

0.88

Correlation Coefficient

Solvay SA  Sumitomo Chemical

Very poor diversification

The 3 months correlation between Solvay and Sumitomo is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Solvay SA and Sumitomo Chemical Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sumitomo Chemical and Solvay SA 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 Solvay SA are associated (or correlated) with Sumitomo Chemical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sumitomo Chemical has no effect on the direction of Solvay SA i.e., Solvay SA and Sumitomo Chemical go up and down completely randomly.

Pair Corralation between Solvay SA and Sumitomo Chemical

Assuming the 90 days horizon Solvay SA is expected to generate 1.45 times more return on investment than Sumitomo Chemical. However, Solvay SA is 1.45 times more volatile than Sumitomo Chemical Co. It trades about 0.09 of its potential returns per unit of risk. Sumitomo Chemical Co is currently generating about 0.11 per unit of risk. If you would invest  3,139  in Solvay SA on December 30, 2024 and sell it today you would earn a total of  421.00  from holding Solvay SA or generate 13.41% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	96.77%
Values	Daily Returns

Solvay SA  vs.  Sumitomo Chemical Co

Solvay SA

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Solvay SA are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Solvay SA reported solid returns over the last few months and may actually be approaching a breakup point.

Sumitomo Chemical

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Sumitomo Chemical Co are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of fairly fragile primary indicators, Sumitomo Chemical showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Solvay SA and Sumitomo Chemical

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

The idea behind Solvay SA and Sumitomo Chemical Co 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.