Correlation Between Sumitomo Chemical and Gujarat Fluorochemicals

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

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

Diversification Opportunities for Sumitomo Chemical and Gujarat Fluorochemicals

0.42

Correlation Coefficient

Sumitomo Chemical  Gujarat Fluorochemicals

Very weak diversification

The 3 months correlation between Sumitomo and Gujarat is 0.42. Overlapping area represents the amount of risk that can be diversified away by holding Sumitomo Chemical India and Gujarat Fluorochemicals Limite in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gujarat Fluorochemicals 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 India are associated (or correlated) with Gujarat Fluorochemicals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Gujarat Fluorochemicals has no effect on the direction of Sumitomo Chemical i.e., Sumitomo Chemical and Gujarat Fluorochemicals go up and down completely randomly.

Pair Corralation between Sumitomo Chemical and Gujarat Fluorochemicals

Assuming the 90 days trading horizon Sumitomo Chemical is expected to generate 3.58 times less return on investment than Gujarat Fluorochemicals. In addition to that, Sumitomo Chemical is 1.08 times more volatile than Gujarat Fluorochemicals Limited. It trades about 0.04 of its total potential returns per unit of risk. Gujarat Fluorochemicals Limited is currently generating about 0.14 per unit of volatility. If you would invest  316,577  in Gujarat Fluorochemicals Limited on September 4, 2024 and sell it today you would earn a total of  88,863  from holding Gujarat Fluorochemicals Limited or generate 28.07% return on investment over 90 days.

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

Sumitomo Chemical India  vs.  Gujarat Fluorochemicals Limite

Sumitomo Chemical India

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Sumitomo Chemical India are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather unfluctuating technical indicators, Sumitomo Chemical may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Gujarat Fluorochemicals

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Gujarat Fluorochemicals Limited are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain technical indicators, Gujarat Fluorochemicals exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Sumitomo Chemical and Gujarat Fluorochemicals

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

The idea behind Sumitomo Chemical India and Gujarat Fluorochemicals Limited 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.