Correlation Between Derwent London and Sumitomo Chemical
Can any of the company-specific risk be diversified away by investing in both Derwent London 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 Derwent London and Sumitomo Chemical into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Derwent London PLC and Sumitomo Chemical, you can compare the effects of market volatilities on Derwent London 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 Derwent London with a short position of Sumitomo Chemical. Check out your portfolio center. Please also check ongoing floating volatility patterns of Derwent London and Sumitomo Chemical.
Diversification Opportunities for Derwent London and Sumitomo Chemical
0.11 | Correlation Coefficient |
Average diversification
The 3 months correlation between Derwent and Sumitomo is 0.11. Overlapping area represents the amount of risk that can be diversified away by holding Derwent London PLC and Sumitomo Chemical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sumitomo Chemical and Derwent London 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 Derwent London PLC 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 Derwent London i.e., Derwent London and Sumitomo Chemical go up and down completely randomly.
Pair Corralation between Derwent London and Sumitomo Chemical
Assuming the 90 days horizon Derwent London is expected to generate 1.51 times less return on investment than Sumitomo Chemical. But when comparing it to its historical volatility, Derwent London PLC is 2.65 times less risky than Sumitomo Chemical. It trades about 0.17 of its potential returns per unit of risk. Sumitomo Chemical is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest 194.00 in Sumitomo Chemical on November 29, 2024 and sell it today you would earn a total of 14.00 from holding Sumitomo Chemical or generate 7.22% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Derwent London PLC vs. Sumitomo Chemical
Performance |
| Timeline |
| Derwent London PLC |
| Sumitomo Chemical |
Derwent London and Sumitomo Chemical Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Derwent London and Sumitomo Chemical
The main advantage of trading using opposite Derwent London and Sumitomo Chemical positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Derwent London 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.| Derwent London vs. Cairo Communication SpA | Derwent London vs. GMO INTERNET | Derwent London vs. INTERSHOP Communications Aktiengesellschaft | Derwent London vs. CompuGroup Medical SE |
| Sumitomo Chemical vs. Mount Gibson Iron | Sumitomo Chemical vs. Xiwang Special Steel | Sumitomo Chemical vs. Sch Environnement SA | Sumitomo Chemical vs. SILICON LABORATOR |
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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.
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