Correlation Between Sumitomo Chemical and BASF SE
Can any of the company-specific risk be diversified away by investing in both Sumitomo Chemical and BASF SE 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 BASF SE into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Sumitomo Chemical Co and BASF SE ADR, you can compare the effects of market volatilities on Sumitomo Chemical and BASF SE 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 BASF SE. Check out your portfolio center. Please also check ongoing floating volatility patterns of Sumitomo Chemical and BASF SE.
Diversification Opportunities for Sumitomo Chemical and BASF SE
0.89 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Sumitomo and BASF is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Sumitomo Chemical Co and BASF SE ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BASF SE ADR 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 Co are associated (or correlated) with BASF SE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BASF SE ADR has no effect on the direction of Sumitomo Chemical i.e., Sumitomo Chemical and BASF SE go up and down completely randomly.
Pair Corralation between Sumitomo Chemical and BASF SE
Assuming the 90 days horizon Sumitomo Chemical Co is expected to under-perform the BASF SE. In addition to that, Sumitomo Chemical is 1.21 times more volatile than BASF SE ADR. It trades about -0.02 of its total potential returns per unit of risk. BASF SE ADR is currently generating about 0.0 per unit of volatility. 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 |
Sumitomo Chemical Co vs. BASF SE ADR
Performance |
| Timeline |
| Sumitomo Chemical |
| BASF SE ADR |
Sumitomo Chemical and BASF SE Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Sumitomo Chemical and BASF SE
The main advantage of trading using opposite Sumitomo Chemical and BASF SE positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Sumitomo Chemical position performs unexpectedly, BASF SE 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 BASF SE will offset losses from the drop in BASF SE's long position.| Sumitomo Chemical vs. Solvay SA | Sumitomo Chemical vs. Orbia Advance | Sumitomo Chemical vs. Braskem SA Class | Sumitomo Chemical vs. Dow Inc |
| BASF SE vs. Shin Etsu Chemical Co | BASF SE vs. Shin Etsu Chemical Co | BASF SE vs. First Graphene | BASF SE vs. Huntsman |
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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.
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