Correlation Between West Island and Sumitomo Dainippon

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

By analyzing existing cross correlation between West Island Brands and Sumitomo Dainippon Pharma, you can compare the effects of market volatilities on West Island and Sumitomo Dainippon 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 West Island with a short position of Sumitomo Dainippon. Check out your portfolio center. Please also check ongoing floating volatility patterns of West Island and Sumitomo Dainippon.

Diversification Opportunities for West Island and Sumitomo Dainippon

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Correlation Coefficient

West Island  Sumitomo Dainippon

Pay attention - limited upside

The 3 months correlation between West and Sumitomo is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding West Island Brands and Sumitomo Dainippon Pharma in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sumitomo Dainippon Pharma and West Island 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 West Island Brands are associated (or correlated) with Sumitomo Dainippon. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sumitomo Dainippon Pharma has no effect on the direction of West Island i.e., West Island and Sumitomo Dainippon go up and down completely randomly.

Pair Corralation between West Island and Sumitomo Dainippon

Assuming the 90 days horizon West Island Brands is expected to generate 24.25 times more return on investment than Sumitomo Dainippon. However, West Island is 24.25 times more volatile than Sumitomo Dainippon Pharma. It trades about 0.09 of its potential returns per unit of risk. Sumitomo Dainippon Pharma is currently generating about -0.59 per unit of risk. If you would invest  7.80  in West Island Brands on September 29, 2024 and sell it today you would lose (7.45) from holding West Island Brands or give up 95.51% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Flat
Strength	Insignificant
Accuracy	4.03%
Values	Daily Returns

West Island Brands  vs.  Sumitomo Dainippon Pharma

West Island Brands

Risk-Adjusted Performance

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Very Weak

Over the last 90 days West Island Brands has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable technical and fundamental indicators, West Island is not utilizing all of its potentials. The recent stock price disturbance, may contribute to mid-run losses for the stockholders.

Sumitomo Dainippon Pharma

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Sumitomo Dainippon Pharma has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Sumitomo Dainippon is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with West Island and Sumitomo Dainippon

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

The idea behind West Island Brands and Sumitomo Dainippon Pharma 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 Transaction History module to view history of all your transactions and understand their impact on performance.