Correlation Between Banco De and Sumitomo Metal

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

By analyzing existing cross correlation between Banco De Chile and Sumitomo Metal Mining, you can compare the effects of market volatilities on Banco De and Sumitomo Metal 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 Banco De with a short position of Sumitomo Metal. Check out your portfolio center. Please also check ongoing floating volatility patterns of Banco De and Sumitomo Metal.

Diversification Opportunities for Banco De and Sumitomo Metal

0.88

Correlation Coefficient

Banco De  Sumitomo Metal

Very poor diversification

The 3 months correlation between Banco and Sumitomo is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Banco De Chile and Sumitomo Metal Mining in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sumitomo Metal Mining and Banco De 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 Banco De Chile are associated (or correlated) with Sumitomo Metal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sumitomo Metal Mining has no effect on the direction of Banco De i.e., Banco De and Sumitomo Metal go up and down completely randomly.

Pair Corralation between Banco De and Sumitomo Metal

Considering the 90-day investment horizon Banco De Chile is expected to generate 1.43 times more return on investment than Sumitomo Metal. However, Banco De is 1.43 times more volatile than Sumitomo Metal Mining. It trades about 0.31 of its potential returns per unit of risk. Sumitomo Metal Mining is currently generating about 0.18 per unit of risk. If you would invest  2,256  in Banco De Chile on December 21, 2024 and sell it today you would earn a total of  529.00  from holding Banco De Chile or generate 23.45% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.33%
Values	Daily Returns

Banco De Chile  vs.  Sumitomo Metal Mining

Banco De Chile

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Banco De Chile are ranked lower than 24 (%) of all global equities and portfolios over the last 90 days. Despite fairly weak fundamental indicators, Banco De demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Sumitomo Metal Mining

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Sumitomo Metal Mining are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Sumitomo Metal may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Banco De and Sumitomo Metal

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

The idea behind Banco De Chile and Sumitomo Metal Mining 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.