Correlation Between Heidelberg Materials and Sumitomo

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

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

Diversification Opportunities for Heidelberg Materials and Sumitomo

0.23

Correlation Coefficient

Heidelberg Materials  Sumitomo

Modest diversification

The 3 months correlation between Heidelberg and Sumitomo is 0.23. Overlapping area represents the amount of risk that can be diversified away by holding Heidelberg Materials AG and Sumitomo in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sumitomo and Heidelberg Materials 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 Heidelberg Materials AG 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 Heidelberg Materials i.e., Heidelberg Materials and Sumitomo go up and down completely randomly.

Pair Corralation between Heidelberg Materials and Sumitomo

Assuming the 90 days horizon Heidelberg Materials AG is expected to under-perform the Sumitomo. But the stock apears to be less risky and, when comparing its historical volatility, Heidelberg Materials AG is 2.06 times less risky than Sumitomo. The stock trades about -0.08 of its potential returns per unit of risk. The Sumitomo is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  2,017  in Sumitomo on October 10, 2024 and sell it today you would earn a total of  39.00  from holding Sumitomo or generate 1.93% return on investment over 90 days.

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

Heidelberg Materials AG  vs.  Sumitomo

Heidelberg Materials

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Heidelberg Materials AG are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady basic indicators, Heidelberg Materials reported solid returns over the last few months and may actually be approaching a breakup point.

Sumitomo

Risk-Adjusted Performance

2 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Sumitomo are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. 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 Heidelberg Materials and Sumitomo

The main advantage of trading using opposite Heidelberg Materials and Sumitomo positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Heidelberg Materials 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 Heidelberg Materials AG 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.

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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.