Correlation Between UPL and Sumitomo Chemical

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

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

Diversification Opportunities for UPL and Sumitomo Chemical

0.64

Correlation Coefficient

UPL  Sumitomo Chemical

Poor diversification

The 3 months correlation between UPL and Sumitomo is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding UPL Limited and Sumitomo Chemical India in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sumitomo Chemical India and UPL 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 UPL Limited 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 India has no effect on the direction of UPL i.e., UPL and Sumitomo Chemical go up and down completely randomly.

Pair Corralation between UPL and Sumitomo Chemical

Assuming the 90 days trading horizon UPL Limited is expected to under-perform the Sumitomo Chemical. But the stock apears to be less risky and, when comparing its historical volatility, UPL Limited is 1.68 times less risky than Sumitomo Chemical. The stock trades about -0.05 of its potential returns per unit of risk. The Sumitomo Chemical India is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  47,989  in Sumitomo Chemical India on September 23, 2024 and sell it today you would earn a total of  4,581  from holding Sumitomo Chemical India or generate 9.55% return on investment over 90 days.

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

UPL Limited  vs.  Sumitomo Chemical India

UPL Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days UPL Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's technical and fundamental indicators remain rather sound which may send shares a bit higher in January 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

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

Pair Trading with UPL and Sumitomo Chemical

The main advantage of trading using opposite UPL and Sumitomo Chemical positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if UPL 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 UPL Limited and Sumitomo Chemical India 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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.