Correlation Between Canadian Utilities and Sumitomo

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

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

Diversification Opportunities for Canadian Utilities and Sumitomo

0.25

Correlation Coefficient

Canadian Utilities  Sumitomo

Modest diversification

The 3 months correlation between Canadian and Sumitomo is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding Canadian Utilities Limited and Sumitomo in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sumitomo and Canadian Utilities 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 Canadian Utilities Limited 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 has no effect on the direction of Canadian Utilities i.e., Canadian Utilities and Sumitomo go up and down completely randomly.

Pair Corralation between Canadian Utilities and Sumitomo

Assuming the 90 days horizon Canadian Utilities is expected to generate 4.25 times less return on investment than Sumitomo. But when comparing it to its historical volatility, Canadian Utilities Limited is 1.99 times less risky than Sumitomo. It trades about 0.02 of its potential returns per unit of risk. Sumitomo is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  1,641  in Sumitomo on October 5, 2024 and sell it today you would earn a total of  437.00  from holding Sumitomo or generate 26.63% return on investment over 90 days.

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

Canadian Utilities Limited  vs.  Sumitomo

Canadian Utilities

Risk-Adjusted Performance

0 of 100

Very Weak

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

Sumitomo

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Canadian Utilities and Sumitomo

The main advantage of trading using opposite Canadian Utilities and Sumitomo positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Canadian Utilities 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 Canadian Utilities Limited and Sumitomo 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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.