Correlation Between Sumitomo Chemical and Global Education

Can any of the company-specific risk be diversified away by investing in both Sumitomo Chemical and Global Education 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 Global Education 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 Global Education Limited, you can compare the effects of market volatilities on Sumitomo Chemical and Global Education 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 Global Education. Check out your portfolio center. Please also check ongoing floating volatility patterns of Sumitomo Chemical and Global Education.

Diversification Opportunities for Sumitomo Chemical and Global Education

0.29

Correlation Coefficient

Sumitomo Chemical  Global Education

Modest diversification

The 3 months correlation between Sumitomo and Global is 0.29. Overlapping area represents the amount of risk that can be diversified away by holding Sumitomo Chemical India and Global Education Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Global Education 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 Global Education. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Global Education has no effect on the direction of Sumitomo Chemical i.e., Sumitomo Chemical and Global Education go up and down completely randomly.

Pair Corralation between Sumitomo Chemical and Global Education

Assuming the 90 days trading horizon Sumitomo Chemical India is expected to generate 1.11 times more return on investment than Global Education. However, Sumitomo Chemical is 1.11 times more volatile than Global Education Limited. It trades about 0.04 of its potential returns per unit of risk. Global Education Limited is currently generating about 0.0 per unit of risk. If you would invest  51,935  in Sumitomo Chemical India on September 4, 2024 and sell it today you would earn a total of  2,360  from holding Sumitomo Chemical India or generate 4.54% return on investment over 90 days.

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

Sumitomo Chemical India  vs.  Global Education Limited

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.

Global Education

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Global Education Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong fundamental drivers, Global Education is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Sumitomo Chemical and Global Education

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

The idea behind Sumitomo Chemical India and Global Education 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.