Correlation Between Citic and Sumitomo Corp

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

By analyzing existing cross correlation between Citic Ltd ADR and Sumitomo Corp ADR, you can compare the effects of market volatilities on Citic and Sumitomo Corp 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 Citic with a short position of Sumitomo Corp. Check out your portfolio center. Please also check ongoing floating volatility patterns of Citic and Sumitomo Corp.

Diversification Opportunities for Citic and Sumitomo Corp

0.71

Correlation Coefficient

Citic  Sumitomo Corp

Poor diversification

The 3 months correlation between Citic and Sumitomo is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Citic Ltd ADR and Sumitomo Corp ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sumitomo Corp ADR and Citic 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 Citic Ltd ADR are associated (or correlated) with Sumitomo Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sumitomo Corp ADR has no effect on the direction of Citic i.e., Citic and Sumitomo Corp go up and down completely randomly.

Pair Corralation between Citic and Sumitomo Corp

Assuming the 90 days horizon Citic is expected to generate 1.55 times less return on investment than Sumitomo Corp. In addition to that, Citic is 1.68 times more volatile than Sumitomo Corp ADR. It trades about 0.03 of its total potential returns per unit of risk. Sumitomo Corp ADR is currently generating about 0.09 per unit of volatility. If you would invest  2,164  in Sumitomo Corp ADR on December 29, 2024 and sell it today you would earn a total of  207.00  from holding Sumitomo Corp ADR or generate 9.57% return on investment over 90 days.

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

Citic Ltd ADR  vs.  Sumitomo Corp ADR

Citic Ltd ADR

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Citic Ltd ADR are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unfluctuating fundamental indicators, Citic may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Sumitomo Corp ADR

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Sumitomo Corp ADR are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak primary indicators, Sumitomo Corp may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Citic and Sumitomo Corp

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

The idea behind Citic Ltd ADR and Sumitomo Corp ADR 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.