Correlation Between Sumitomo Dainippon and Catalent

Can any of the company-specific risk be diversified away by investing in both Sumitomo Dainippon and Catalent 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 Dainippon and Catalent into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Sumitomo Dainippon Pharma and Catalent, you can compare the effects of market volatilities on Sumitomo Dainippon and Catalent 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 Dainippon with a short position of Catalent. Check out your portfolio center. Please also check ongoing floating volatility patterns of Sumitomo Dainippon and Catalent.

Diversification Opportunities for Sumitomo Dainippon and Catalent

-0.63

Correlation Coefficient

Sumitomo Dainippon  Catalent

Excellent diversification

The 3 months correlation between Sumitomo and Catalent is -0.63. Overlapping area represents the amount of risk that can be diversified away by holding Sumitomo Dainippon Pharma and Catalent in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Catalent and Sumitomo Dainippon 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 Dainippon Pharma are associated (or correlated) with Catalent. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Catalent has no effect on the direction of Sumitomo Dainippon i.e., Sumitomo Dainippon and Catalent go up and down completely randomly.

Pair Corralation between Sumitomo Dainippon and Catalent

Assuming the 90 days horizon Sumitomo Dainippon Pharma is expected to under-perform the Catalent. In addition to that, Sumitomo Dainippon is 1.25 times more volatile than Catalent. It trades about -0.63 of its total potential returns per unit of risk. Catalent is currently generating about 0.03 per unit of volatility. If you would invest  4,626  in Catalent on September 4, 2024 and sell it today you would earn a total of  1,485  from holding Catalent or generate 32.1% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	4.25%
Values	Daily Returns

Sumitomo Dainippon Pharma  vs.  Catalent

Sumitomo Dainippon Pharma

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Sumitomo Dainippon Pharma has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Sumitomo Dainippon is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Catalent

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Catalent are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable essential indicators, Catalent is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Sumitomo Dainippon and Catalent

The main advantage of trading using opposite Sumitomo Dainippon and Catalent positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Sumitomo Dainippon position performs unexpectedly, Catalent 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 Catalent will offset losses from the drop in Catalent's long position.

The idea behind Sumitomo Dainippon Pharma and Catalent 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.

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 Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.