Correlation Between Sumitomo Chemical and Heartland Financial

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

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

Diversification Opportunities for Sumitomo Chemical and Heartland Financial

-0.8

Correlation Coefficient

Sumitomo Chemical  Heartland Financial

Pay attention - limited upside

The 3 months correlation between Sumitomo and Heartland is -0.8. Overlapping area represents the amount of risk that can be diversified away by holding Sumitomo Chemical and Heartland Financial USA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Heartland Financial USA and Sumitomo Chemical 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 Sumitomo Chemical are associated (or correlated) with Heartland Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Heartland Financial USA has no effect on the direction of Sumitomo Chemical i.e., Sumitomo Chemical and Heartland Financial go up and down completely randomly.

Pair Corralation between Sumitomo Chemical and Heartland Financial

Assuming the 90 days horizon Sumitomo Chemical is expected to under-perform the Heartland Financial. In addition to that, Sumitomo Chemical is 1.17 times more volatile than Heartland Financial USA. It trades about -0.08 of its total potential returns per unit of risk. Heartland Financial USA is currently generating about 0.18 per unit of volatility. If you would invest  4,976  in Heartland Financial USA on September 3, 2024 and sell it today you would earn a total of  1,374  from holding Heartland Financial USA or generate 27.61% return on investment over 90 days.

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

Sumitomo Chemical  vs.  Heartland Financial USA

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 fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Heartland Financial USA

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Heartland Financial USA are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Heartland Financial reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Sumitomo Chemical and Heartland Financial

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

The idea behind Sumitomo Chemical and Heartland Financial USA 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.