Correlation Between BASF SE and Sumitomo Chemical
Can any of the company-specific risk be diversified away by investing in both BASF SE 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 BASF SE and Sumitomo Chemical into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between BASF SE ADR and Sumitomo Chemical Co, you can compare the effects of market volatilities on BASF SE 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 BASF SE with a short position of Sumitomo Chemical. Check out your portfolio center. Please also check ongoing floating volatility patterns of BASF SE and Sumitomo Chemical.
Diversification Opportunities for BASF SE and Sumitomo Chemical
0.89 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between BASF and Sumitomo is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding BASF SE 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 BASF SE 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 BASF SE 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 BASF SE i.e., BASF SE and Sumitomo Chemical go up and down completely randomly.
Pair Corralation between BASF SE and Sumitomo Chemical
Assuming the 90 days horizon BASF SE ADR is expected to generate 0.83 times more return on investment than Sumitomo Chemical. However, BASF SE ADR is 1.21 times less risky than Sumitomo Chemical. It trades about 0.0 of its potential returns per unit of risk. Sumitomo Chemical Co is currently generating about -0.02 per unit of risk. If you would invest 1,183 in BASF SE ADR on August 31, 2024 and sell it today you would lose (68.00) from holding BASF SE ADR or give up 5.75% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
BASF SE ADR vs. Sumitomo Chemical Co
Performance |
| Timeline |
| BASF SE ADR |
| Sumitomo Chemical |
BASF SE and Sumitomo Chemical Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with BASF SE and Sumitomo Chemical
The main advantage of trading using opposite BASF SE and Sumitomo Chemical positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BASF SE 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.| BASF SE vs. Shin Etsu Chemical Co | BASF SE vs. Shin Etsu Chemical Co | BASF SE vs. First Graphene | BASF SE vs. Huntsman |
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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 Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.
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