Correlation Between Japan Steel and Sumitomo

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

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

Diversification Opportunities for Japan Steel and Sumitomo

0.02

Correlation Coefficient

Japan Steel  Sumitomo

Significant diversification

The 3 months correlation between Japan and Sumitomo is 0.02. Overlapping area represents the amount of risk that can be diversified away by holding The Japan Steel and Sumitomo in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sumitomo and Japan Steel 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 The Japan Steel 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 Japan Steel i.e., Japan Steel and Sumitomo go up and down completely randomly.

Pair Corralation between Japan Steel and Sumitomo

Assuming the 90 days horizon Japan Steel is expected to generate 3.2 times less return on investment than Sumitomo. In addition to that, Japan Steel is 1.57 times more volatile than Sumitomo. It trades about 0.02 of its total potential returns per unit of risk. Sumitomo is currently generating about 0.11 per unit of volatility. If you would invest  1,986  in Sumitomo on December 22, 2024 and sell it today you would earn a total of  322.00  from holding Sumitomo or generate 16.21% return on investment over 90 days.

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

The Japan Steel  vs.  Sumitomo

Japan Steel

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in The Japan Steel are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Japan Steel is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Sumitomo

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Sumitomo are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile primary indicators, Sumitomo reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Japan Steel and Sumitomo

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

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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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.