Correlation Between Sumitomo Chemical and First Graphene

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

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

Diversification Opportunities for Sumitomo Chemical and First Graphene

0.9

Correlation Coefficient

Sumitomo Chemical  First Graphene

Almost no diversification

The 3 months correlation between Sumitomo and First is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding Sumitomo Chemical Co and First Graphene in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Graphene 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 Co are associated (or correlated) with First Graphene. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Graphene has no effect on the direction of Sumitomo Chemical i.e., Sumitomo Chemical and First Graphene go up and down completely randomly.

Pair Corralation between Sumitomo Chemical and First Graphene

Assuming the 90 days horizon Sumitomo Chemical Co is expected to generate 0.16 times more return on investment than First Graphene. However, Sumitomo Chemical Co is 6.27 times less risky than First Graphene. It trades about -0.25 of its potential returns per unit of risk. First Graphene is currently generating about -0.05 per unit of risk. If you would invest  1,427  in Sumitomo Chemical Co on September 20, 2024 and sell it today you would lose (312.00) from holding Sumitomo Chemical Co or give up 21.86% of portfolio value over 90 days.

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

Sumitomo Chemical Co  vs.  First Graphene

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.

First Graphene

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days First Graphene 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 technical 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.

Pair Trading with Sumitomo Chemical and First Graphene

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

The idea behind Sumitomo Chemical Co and First Graphene 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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.