Correlation Between Iluka Resources and Sumitomo Metal

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

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

Diversification Opportunities for Iluka Resources and Sumitomo Metal

0.6

Correlation Coefficient

Iluka Resources  Sumitomo Metal

Poor diversification

The 3 months correlation between Iluka and Sumitomo is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Iluka Resources Ltd and Sumitomo Metal Mining in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sumitomo Metal Mining and Iluka Resources 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 Iluka Resources Ltd are associated (or correlated) with Sumitomo Metal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sumitomo Metal Mining has no effect on the direction of Iluka Resources i.e., Iluka Resources and Sumitomo Metal go up and down completely randomly.

Pair Corralation between Iluka Resources and Sumitomo Metal

Assuming the 90 days horizon Iluka Resources Ltd is expected to under-perform the Sumitomo Metal. In addition to that, Iluka Resources is 1.45 times more volatile than Sumitomo Metal Mining. It trades about -0.14 of its total potential returns per unit of risk. Sumitomo Metal Mining is currently generating about -0.1 per unit of volatility. If you would invest  615.00  in Sumitomo Metal Mining on December 2, 2024 and sell it today you would lose (70.00) from holding Sumitomo Metal Mining or give up 11.38% of portfolio value over 90 days.

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

Iluka Resources Ltd  vs.  Sumitomo Metal Mining

Iluka Resources

Risk-Adjusted Performance

Very Weak

Over the last 90 days Iluka Resources Ltd has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Sumitomo Metal Mining

Risk-Adjusted Performance

Very Weak

Over the last 90 days Sumitomo Metal Mining has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of 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.

Pair Trading with Iluka Resources and Sumitomo Metal

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

The idea behind Iluka Resources Ltd and Sumitomo Metal Mining 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 Global Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.