Correlation Between Sumitomo Mitsui and Shin Etsu

Can any of the company-specific risk be diversified away by investing in both Sumitomo Mitsui and Shin Etsu 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 Shin Etsu 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 Shin Etsu Chemical Co, you can compare the effects of market volatilities on Sumitomo Mitsui and Shin Etsu 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 Shin Etsu. Check out your portfolio center. Please also check ongoing floating volatility patterns of Sumitomo Mitsui and Shin Etsu.

Diversification Opportunities for Sumitomo Mitsui and Shin Etsu

0.49

Correlation Coefficient

Sumitomo Mitsui  Shin Etsu

Very weak diversification

The 3 months correlation between Sumitomo and Shin is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding Sumitomo Mitsui Construction and Shin Etsu Chemical Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shin Etsu Chemical 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 Shin Etsu. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shin Etsu Chemical has no effect on the direction of Sumitomo Mitsui i.e., Sumitomo Mitsui and Shin Etsu go up and down completely randomly.

Pair Corralation between Sumitomo Mitsui and Shin Etsu

Assuming the 90 days horizon Sumitomo Mitsui Construction is expected to generate 0.81 times more return on investment than Shin Etsu. However, Sumitomo Mitsui Construction is 1.23 times less risky than Shin Etsu. It trades about 0.03 of its potential returns per unit of risk. Shin Etsu Chemical Co is currently generating about -0.06 per unit of risk. If you would invest  244.00  in Sumitomo Mitsui Construction on September 15, 2024 and sell it today you would earn a total of  6.00  from holding Sumitomo Mitsui Construction or generate 2.46% return on investment over 90 days.

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

Sumitomo Mitsui Construction  vs.  Shin Etsu Chemical Co

Sumitomo Mitsui Cons

Risk-Adjusted Performance

2 of 100

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 newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Shin Etsu Chemical

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Shin Etsu Chemical Co has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Sumitomo Mitsui and Shin Etsu

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

The idea behind Sumitomo Mitsui Construction and Shin Etsu Chemical 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.