Correlation Between Aris Water and SUMITOMO

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

By analyzing existing cross correlation between Aris Water Solutions and SUMITOMO MITSUI FINANCIAL, you can compare the effects of market volatilities on Aris Water and SUMITOMO 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 Aris Water with a short position of SUMITOMO. Check out your portfolio center. Please also check ongoing floating volatility patterns of Aris Water and SUMITOMO.

Diversification Opportunities for Aris Water and SUMITOMO

-0.59

Correlation Coefficient

Aris Water  SUMITOMO

Excellent diversification

The 3 months correlation between Aris and SUMITOMO is -0.59. Overlapping area represents the amount of risk that can be diversified away by holding Aris Water Solutions and SUMITOMO MITSUI FINANCIAL in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SUMITOMO MITSUI FINANCIAL and Aris Water 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 Aris Water Solutions are associated (or correlated) with SUMITOMO. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SUMITOMO MITSUI FINANCIAL has no effect on the direction of Aris Water i.e., Aris Water and SUMITOMO go up and down completely randomly.

Pair Corralation between Aris Water and SUMITOMO

Given the investment horizon of 90 days Aris Water Solutions is expected to generate 9.35 times more return on investment than SUMITOMO. However, Aris Water is 9.35 times more volatile than SUMITOMO MITSUI FINANCIAL. It trades about 0.19 of its potential returns per unit of risk. SUMITOMO MITSUI FINANCIAL is currently generating about -0.18 per unit of risk. If you would invest  1,628  in Aris Water Solutions on September 13, 2024 and sell it today you would earn a total of  1,009  from holding Aris Water Solutions or generate 61.98% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	87.3%
Values	Daily Returns

Aris Water Solutions  vs.  SUMITOMO MITSUI FINANCIAL

Aris Water Solutions

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Aris Water Solutions are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak forward indicators, Aris Water unveiled solid returns over the last few months and may actually be approaching a breakup point.

SUMITOMO MITSUI FINANCIAL

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days SUMITOMO MITSUI FINANCIAL has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, SUMITOMO is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Aris Water and SUMITOMO

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

The idea behind Aris Water Solutions and SUMITOMO MITSUI FINANCIAL 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.