Correlation Between EIDESVIK OFFSHORE and Sumitomo Chemical

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

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

Diversification Opportunities for EIDESVIK OFFSHORE and Sumitomo Chemical

0.79

Correlation Coefficient

EIDESVIK OFFSHORE  Sumitomo Chemical

Poor diversification

The 3 months correlation between EIDESVIK and Sumitomo is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding EIDESVIK OFFSHORE NK and Sumitomo Chemical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sumitomo Chemical and EIDESVIK OFFSHORE 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 EIDESVIK OFFSHORE NK 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 EIDESVIK OFFSHORE i.e., EIDESVIK OFFSHORE and Sumitomo Chemical go up and down completely randomly.

Pair Corralation between EIDESVIK OFFSHORE and Sumitomo Chemical

Assuming the 90 days horizon EIDESVIK OFFSHORE NK is expected to generate 1.13 times more return on investment than Sumitomo Chemical. However, EIDESVIK OFFSHORE is 1.13 times more volatile than Sumitomo Chemical. It trades about 0.04 of its potential returns per unit of risk. Sumitomo Chemical is currently generating about -0.24 per unit of risk. If you would invest  110.00  in EIDESVIK OFFSHORE NK on August 31, 2024 and sell it today you would earn a total of  1.00  from holding EIDESVIK OFFSHORE NK or generate 0.91% return on investment over 90 days.

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

EIDESVIK OFFSHORE NK  vs.  Sumitomo Chemical

EIDESVIK OFFSHORE

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days EIDESVIK OFFSHORE NK has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in December 2024. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Sumitomo Chemical

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Sumitomo Chemical has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with EIDESVIK OFFSHORE and Sumitomo Chemical

The main advantage of trading using opposite EIDESVIK OFFSHORE and Sumitomo Chemical positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if EIDESVIK OFFSHORE 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 EIDESVIK OFFSHORE NK and Sumitomo Chemical 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.