Correlation Between Erste Group and Sumitomo Mitsui

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

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

Diversification Opportunities for Erste Group and Sumitomo Mitsui

0.14

Correlation Coefficient

Erste Group  Sumitomo Mitsui

Average diversification

The 3 months correlation between Erste and Sumitomo is 0.14. Overlapping area represents the amount of risk that can be diversified away by holding Erste Group Bank 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 Erste Group 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 Erste Group Bank 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 Erste Group i.e., Erste Group and Sumitomo Mitsui go up and down completely randomly.

Pair Corralation between Erste Group and Sumitomo Mitsui

Assuming the 90 days horizon Erste Group is expected to generate 15.45 times less return on investment than Sumitomo Mitsui. But when comparing it to its historical volatility, Erste Group Bank is 8.39 times less risky than Sumitomo Mitsui. It trades about 0.06 of its potential returns per unit of risk. Sumitomo Mitsui Trust is currently generating about 0.11 of returns per unit of risk over similar time horizon. 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

Erste Group Bank  vs.  Sumitomo Mitsui Trust

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.

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.

Pair Trading with Erste Group and Sumitomo Mitsui

The main advantage of trading using opposite Erste Group and Sumitomo Mitsui positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Erste Group 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 Erste Group Bank 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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.