Correlation Between Sumitomo Mitsui and Erste Group

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

By analyzing existing cross correlation between Sumitomo Mitsui Trust and Erste Group Bank, you can compare the effects of market volatilities on Sumitomo Mitsui and Erste Group 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 Erste Group. Check out your portfolio center. Please also check ongoing floating volatility patterns of Sumitomo Mitsui and Erste Group.

Diversification Opportunities for Sumitomo Mitsui and Erste Group

0.14

Correlation Coefficient

Sumitomo Mitsui  Erste Group

Average diversification

The 3 months correlation between Sumitomo and Erste is 0.14. Overlapping area represents the amount of risk that can be diversified away by holding Sumitomo Mitsui Trust and Erste Group Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Erste Group Bank 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 Trust are associated (or correlated) with Erste Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Erste Group Bank has no effect on the direction of Sumitomo Mitsui i.e., Sumitomo Mitsui and Erste Group go up and down completely randomly.

Pair Corralation between Sumitomo Mitsui and Erste Group

Assuming the 90 days horizon Sumitomo Mitsui Trust is expected to generate 8.39 times more return on investment than Erste Group. However, Sumitomo Mitsui is 8.39 times more volatile than Erste Group Bank. It trades about 0.11 of its potential returns per unit of risk. Erste Group Bank is currently generating about 0.06 per unit of risk. If you would invest  3,500  in Sumitomo Mitsui Trust on September 26, 2024 and sell it today you would lose (1,305) from holding Sumitomo Mitsui Trust or give up 37.29% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	69.83%
Values	Daily Returns

Sumitomo Mitsui Trust  vs.  Erste Group Bank

Sumitomo Mitsui Trust

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Sumitomo Mitsui Trust has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable fundamental indicators, Sumitomo Mitsui is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Erste Group Bank

Risk-Adjusted Performance

8 of 100

OK

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

Pair Trading with Sumitomo Mitsui and Erste Group

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

The idea behind Sumitomo Mitsui Trust and Erste Group Bank 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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.