Correlation Between Sumitomo Mitsui and HYDROFARM HLD

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

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

Diversification Opportunities for Sumitomo Mitsui and HYDROFARM HLD

-0.61

Correlation Coefficient

Sumitomo Mitsui  HYDROFARM HLD

Excellent diversification

The 3 months correlation between Sumitomo and HYDROFARM is -0.61. Overlapping area represents the amount of risk that can be diversified away by holding Sumitomo Mitsui Construction and HYDROFARM HLD GRP in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HYDROFARM HLD GRP and Sumitomo Mitsui 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 Mitsui Construction are associated (or correlated) with HYDROFARM HLD. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of HYDROFARM HLD GRP has no effect on the direction of Sumitomo Mitsui i.e., Sumitomo Mitsui and HYDROFARM HLD go up and down completely randomly.

Pair Corralation between Sumitomo Mitsui and HYDROFARM HLD

Assuming the 90 days horizon Sumitomo Mitsui is expected to generate 228.44 times less return on investment than HYDROFARM HLD. But when comparing it to its historical volatility, Sumitomo Mitsui Construction is 94.34 times less risky than HYDROFARM HLD. It trades about 0.06 of its potential returns per unit of risk. HYDROFARM HLD GRP is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  552.00  in HYDROFARM HLD GRP on December 2, 2024 and sell it today you would lose (22.00) from holding HYDROFARM HLD GRP or give up 3.99% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	97.67%
Values	Daily Returns

Sumitomo Mitsui Construction  vs.  HYDROFARM HLD GRP

Sumitomo Mitsui Cons

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Sumitomo Mitsui Construction are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Sumitomo Mitsui is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

HYDROFARM HLD GRP

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in HYDROFARM HLD GRP are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, HYDROFARM HLD reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Sumitomo Mitsui and HYDROFARM HLD

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

The idea behind Sumitomo Mitsui Construction and HYDROFARM HLD GRP 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.