Correlation Between British American and Sumitomo Chemical
Can any of the company-specific risk be diversified away by investing in both British American 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 British American and Sumitomo Chemical into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between British American Tobacco and Sumitomo Chemical, you can compare the effects of market volatilities on British American 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 British American with a short position of Sumitomo Chemical. Check out your portfolio center. Please also check ongoing floating volatility patterns of British American and Sumitomo Chemical.
Diversification Opportunities for British American and Sumitomo Chemical
0.05 | Correlation Coefficient |
Significant diversification
The 3 months correlation between British and Sumitomo is 0.05. Overlapping area represents the amount of risk that can be diversified away by holding British American Tobacco and Sumitomo Chemical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sumitomo Chemical and British American 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 British American Tobacco 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 British American i.e., British American and Sumitomo Chemical go up and down completely randomly.
Pair Corralation between British American and Sumitomo Chemical
Assuming the 90 days trading horizon British American Tobacco is expected to generate 0.46 times more return on investment than Sumitomo Chemical. However, British American Tobacco is 2.17 times less risky than Sumitomo Chemical. It trades about 0.06 of its potential returns per unit of risk. Sumitomo Chemical is currently generating about -0.01 per unit of risk. If you would invest 2,793 in British American Tobacco on December 13, 2024 and sell it today you would earn a total of 984.00 from holding British American Tobacco or generate 35.23% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 99.0% |
| Values | Daily Returns |
British American Tobacco vs. Sumitomo Chemical
Performance |
| Timeline |
| British American Tobacco |
| Sumitomo Chemical |
British American and Sumitomo Chemical Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with British American and Sumitomo Chemical
The main advantage of trading using opposite British American and Sumitomo Chemical positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if British American 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.| British American vs. TIANDE CHEMICAL | ||
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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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.
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