Correlation Between Sumitomo Chemical and United Breweries

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

By analyzing existing cross correlation between Sumitomo Chemical and United Breweries Co, you can compare the effects of market volatilities on Sumitomo Chemical and United Breweries 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 United Breweries. Check out your portfolio center. Please also check ongoing floating volatility patterns of Sumitomo Chemical and United Breweries.

Diversification Opportunities for Sumitomo Chemical and United Breweries

-0.26

Correlation Coefficient

Sumitomo Chemical  United Breweries

Very good diversification

The 3 months correlation between Sumitomo and United is -0.26. Overlapping area represents the amount of risk that can be diversified away by holding Sumitomo Chemical and United Breweries Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on United Breweries 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 United Breweries. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of United Breweries has no effect on the direction of Sumitomo Chemical i.e., Sumitomo Chemical and United Breweries go up and down completely randomly.

Pair Corralation between Sumitomo Chemical and United Breweries

Assuming the 90 days horizon Sumitomo Chemical is expected to generate 1.45 times more return on investment than United Breweries. However, Sumitomo Chemical is 1.45 times more volatile than United Breweries Co. It trades about -0.05 of its potential returns per unit of risk. United Breweries Co is currently generating about -0.08 per unit of risk. If you would invest  208.00  in Sumitomo Chemical on March 28, 2024 and sell it today you would lose (13.00) from holding Sumitomo Chemical or give up 6.25% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Sumitomo Chemical  vs.  United Breweries Co

Sumitomo Chemical

Risk-Adjusted Performance

0 of 100

Very Weak

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

United Breweries

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days United Breweries Co has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, United Breweries is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Sumitomo Chemical and United Breweries

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

The idea behind Sumitomo Chemical and United Breweries Co 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.

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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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.