Correlation Between Sumitomo Chemical and AVITA Medical
Can any of the company-specific risk be diversified away by investing in both Sumitomo Chemical and AVITA Medical 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 AVITA Medical into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Sumitomo Chemical and AVITA Medical, you can compare the effects of market volatilities on Sumitomo Chemical and AVITA Medical 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 AVITA Medical. Check out your portfolio center. Please also check ongoing floating volatility patterns of Sumitomo Chemical and AVITA Medical.
Diversification Opportunities for Sumitomo Chemical and AVITA Medical
-0.71 | Correlation Coefficient |
Pay attention - limited upside
The 3 months correlation between Sumitomo and AVITA is -0.71. Overlapping area represents the amount of risk that can be diversified away by holding Sumitomo Chemical and AVITA Medical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AVITA Medical 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 are associated (or correlated) with AVITA Medical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AVITA Medical has no effect on the direction of Sumitomo Chemical i.e., Sumitomo Chemical and AVITA Medical go up and down completely randomly.
Pair Corralation between Sumitomo Chemical and AVITA Medical
Assuming the 90 days horizon Sumitomo Chemical is expected to under-perform the AVITA Medical. But the stock apears to be less risky and, when comparing its historical volatility, Sumitomo Chemical is 3.5 times less risky than AVITA Medical. The stock trades about -0.24 of its potential returns per unit of risk. The AVITA Medical is currently generating about 0.25 of returns per unit of risk over similar time horizon. If you would invest 186.00 in AVITA Medical on August 31, 2024 and sell it today you would earn a total of 48.00 from holding AVITA Medical or generate 25.81% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Sumitomo Chemical vs. AVITA Medical
Performance |
| Timeline |
| Sumitomo Chemical |
| AVITA Medical |
Sumitomo Chemical and AVITA Medical Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Sumitomo Chemical and AVITA Medical
The main advantage of trading using opposite Sumitomo Chemical and AVITA Medical positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Sumitomo Chemical position performs unexpectedly, AVITA Medical 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 AVITA Medical will offset losses from the drop in AVITA Medical's long position.The idea behind Sumitomo Chemical and AVITA Medical 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.| AVITA Medical vs. Apple Inc | AVITA Medical vs. Apple Inc | AVITA Medical vs. Apple Inc | AVITA Medical vs. Apple Inc |
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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.
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