Correlation Between Kuraray and Sumitomo Chemical

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

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

Diversification Opportunities for Kuraray and Sumitomo Chemical

0.33

Correlation Coefficient

Kuraray  Sumitomo Chemical

Weak diversification

The 3 months correlation between Kuraray and Sumitomo is 0.33. Overlapping area represents the amount of risk that can be diversified away by holding Kuraray Co and Sumitomo Chemical Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sumitomo Chemical and Kuraray 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 Kuraray Co 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 Kuraray i.e., Kuraray and Sumitomo Chemical go up and down completely randomly.

Pair Corralation between Kuraray and Sumitomo Chemical

Assuming the 90 days horizon Kuraray Co is expected to generate 2.08 times more return on investment than Sumitomo Chemical. However, Kuraray is 2.08 times more volatile than Sumitomo Chemical Co. It trades about 0.01 of its potential returns per unit of risk. Sumitomo Chemical Co is currently generating about -0.25 per unit of risk. If you would invest  4,480  in Kuraray Co on September 20, 2024 and sell it today you would lose (30.00) from holding Kuraray Co or give up 0.67% of portfolio value over 90 days.

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

Kuraray Co  vs.  Sumitomo Chemical Co

Kuraray

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Kuraray Co has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, Kuraray is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Sumitomo Chemical

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Sumitomo Chemical Co has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of conflicting performance in the last few months, the Stock's primary indicators remain fairly strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Kuraray and Sumitomo Chemical

The main advantage of trading using opposite Kuraray and Sumitomo Chemical positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Kuraray 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 Kuraray Co 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.

Check out your portfolio center.

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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.