Correlation Between CVS Health and Sumitomo Mitsui

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

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

Diversification Opportunities for CVS Health and Sumitomo Mitsui

-0.26

Correlation Coefficient

CVS Health  Sumitomo Mitsui

Very good diversification

The 3 months correlation between CVS and Sumitomo is -0.26. Overlapping area represents the amount of risk that can be diversified away by holding CVS Health 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 CVS Health 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 CVS Health are associated (or correlated) with Sumitomo Mitsui. 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 CVS Health i.e., CVS Health and Sumitomo Mitsui go up and down completely randomly.

Pair Corralation between CVS Health and Sumitomo Mitsui

Assuming the 90 days trading horizon CVS Health is expected to under-perform the Sumitomo Mitsui. But the stock apears to be less risky and, when comparing its historical volatility, CVS Health is 1.08 times less risky than Sumitomo Mitsui. The stock trades about -0.03 of its potential returns per unit of risk. The Sumitomo Mitsui Financial is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  3,520  in Sumitomo Mitsui Financial on September 23, 2024 and sell it today you would earn a total of  5,507  from holding Sumitomo Mitsui Financial or generate 156.45% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	79.96%
Values	Daily Returns

CVS Health  vs.  Sumitomo Mitsui Financial

CVS Health

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days CVS Health has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Sumitomo Mitsui Financial

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Sumitomo Mitsui Financial are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak primary indicators, Sumitomo Mitsui sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with CVS Health and Sumitomo Mitsui

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

The idea behind CVS Health 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.

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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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.