Correlation Between Sumitomo Mitsui and Tenaris SA

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

Diversification Opportunities for Sumitomo Mitsui and Tenaris SA

0.04

Correlation Coefficient

Sumitomo Mitsui  Tenaris SA

Significant diversification

The 3 months correlation between Sumitomo and Tenaris is 0.04. Overlapping area represents the amount of risk that can be diversified away by holding Sumitomo Mitsui Construction and Tenaris SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tenaris SA 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 Tenaris SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tenaris SA has no effect on the direction of Sumitomo Mitsui i.e., Sumitomo Mitsui and Tenaris SA go up and down completely randomly.

Pair Corralation between Sumitomo Mitsui and Tenaris SA

Assuming the 90 days horizon Sumitomo Mitsui is expected to generate 6.41 times less return on investment than Tenaris SA. But when comparing it to its historical volatility, Sumitomo Mitsui Construction is 1.03 times less risky than Tenaris SA. It trades about 0.04 of its potential returns per unit of risk. Tenaris SA is currently generating about 0.24 of returns per unit of risk over similar time horizon. If you would invest  2,698  in Tenaris SA on September 24, 2024 and sell it today you would earn a total of  802.00  from holding Tenaris SA or generate 29.73% return on investment over 90 days.

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

Sumitomo Mitsui Construction  vs.  Tenaris SA

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.

Tenaris SA

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Tenaris SA are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Tenaris SA reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Sumitomo Mitsui and Tenaris SA

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

The idea behind Sumitomo Mitsui Construction and Tenaris SA 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.