Correlation Between Mondi PLC and Sumitomo Chemical

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

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

Diversification Opportunities for Mondi PLC and Sumitomo Chemical

0.9

Correlation Coefficient

Mondi PLC  Sumitomo Chemical

Almost no diversification

The 3 months correlation between Mondi and Sumitomo is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding Mondi PLC ADR and Sumitomo Chemical Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sumitomo Chemical and Mondi PLC 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 Mondi PLC ADR 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 Mondi PLC i.e., Mondi PLC and Sumitomo Chemical go up and down completely randomly.

Pair Corralation between Mondi PLC and Sumitomo Chemical

Assuming the 90 days horizon Mondi PLC ADR is expected to under-perform the Sumitomo Chemical. In addition to that, Mondi PLC is 1.2 times more volatile than Sumitomo Chemical Co. It trades about -0.14 of its total potential returns per unit of risk. Sumitomo Chemical Co is currently generating about -0.14 per unit of volatility. If you would invest  1,373  in Sumitomo Chemical Co on September 12, 2024 and sell it today you would lose (193.00) from holding Sumitomo Chemical Co or give up 14.06% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	98.44%
Values	Daily Returns

Mondi PLC ADR  vs.  Sumitomo Chemical Co

Mondi PLC ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Mondi PLC ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's fundamental 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.

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 fragile 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 Mondi PLC and Sumitomo Chemical

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

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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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.