Correlation Between Transport and Sumitomo Chemical

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

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

Diversification Opportunities for Transport and Sumitomo Chemical

0.65

Correlation Coefficient

Transport  Sumitomo Chemical

Poor diversification

The 3 months correlation between Transport and Sumitomo is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Transport of 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 Transport 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 Transport of 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 Transport i.e., Transport and Sumitomo Chemical go up and down completely randomly.

Pair Corralation between Transport and Sumitomo Chemical

Assuming the 90 days trading horizon Transport is expected to generate 1.84 times less return on investment than Sumitomo Chemical. But when comparing it to its historical volatility, Transport of is 1.22 times less risky than Sumitomo Chemical. It trades about 0.06 of its potential returns per unit of risk. Sumitomo Chemical India is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  53,335  in Sumitomo Chemical India on April 24, 2025 and sell it today you would earn a total of  6,020  from holding Sumitomo Chemical India or generate 11.29% return on investment over 90 days.

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

Transport of  vs.  Sumitomo Chemical India

Transport

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Transport of are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of rather unfluctuating technical and fundamental indicators, Transport may actually be approaching a critical reversion point that can send shares even higher in August 2025.

Sumitomo Chemical India

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Sumitomo Chemical India are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak technical indicators, Sumitomo Chemical may actually be approaching a critical reversion point that can send shares even higher in August 2025.

Pair Trading with Transport and Sumitomo Chemical

The main advantage of trading using opposite Transport and Sumitomo Chemical positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Transport 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 Transport of 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.