Correlation Between Daiwa House and Sumitomo Mitsui

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

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

Diversification Opportunities for Daiwa House and Sumitomo Mitsui

0.91

Correlation Coefficient

Daiwa House  Sumitomo Mitsui

Almost no diversification

The 3 months correlation between Daiwa and Sumitomo is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding Daiwa House Industry and Sumitomo Mitsui Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sumitomo Mitsui Trust and Daiwa House 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 Daiwa House Industry 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 Trust has no effect on the direction of Daiwa House i.e., Daiwa House and Sumitomo Mitsui go up and down completely randomly.

Pair Corralation between Daiwa House and Sumitomo Mitsui

Assuming the 90 days horizon Daiwa House is expected to generate 1.35 times less return on investment than Sumitomo Mitsui. But when comparing it to its historical volatility, Daiwa House Industry is 1.03 times less risky than Sumitomo Mitsui. It trades about 0.15 of its potential returns per unit of risk. Sumitomo Mitsui Trust is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest  468.00  in Sumitomo Mitsui Trust on December 23, 2024 and sell it today you would earn a total of  73.00  from holding Sumitomo Mitsui Trust or generate 15.6% return on investment over 90 days.

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

Daiwa House Industry  vs.  Sumitomo Mitsui Trust

Daiwa House Industry

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Daiwa House Industry are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak technical indicators, Daiwa House may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Sumitomo Mitsui Trust

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Sumitomo Mitsui Trust are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Sumitomo Mitsui showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Daiwa House and Sumitomo Mitsui

The main advantage of trading using opposite Daiwa House and Sumitomo Mitsui positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Daiwa House 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 Daiwa House Industry and Sumitomo Mitsui Trust 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.