Correlation Between Marubeni Corp and Sumitomo Corp

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

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

Diversification Opportunities for Marubeni Corp and Sumitomo Corp

0.75

Correlation Coefficient

Marubeni Corp  Sumitomo Corp

Poor diversification

The 3 months correlation between Marubeni and Sumitomo is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Marubeni Corp ADR and Sumitomo Corp ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sumitomo Corp ADR and Marubeni Corp 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 Marubeni Corp ADR are associated (or correlated) with Sumitomo Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sumitomo Corp ADR has no effect on the direction of Marubeni Corp i.e., Marubeni Corp and Sumitomo Corp go up and down completely randomly.

Pair Corralation between Marubeni Corp and Sumitomo Corp

Assuming the 90 days horizon Marubeni Corp is expected to generate 1.02 times less return on investment than Sumitomo Corp. But when comparing it to its historical volatility, Marubeni Corp ADR is 1.05 times less risky than Sumitomo Corp. It trades about 0.08 of its potential returns per unit of risk. Sumitomo Corp ADR is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  2,188  in Sumitomo Corp ADR on December 1, 2024 and sell it today you would earn a total of  66.00  from holding Sumitomo Corp ADR or generate 3.02% return on investment over 90 days.

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

Marubeni Corp ADR  vs.  Sumitomo Corp ADR

Marubeni Corp ADR

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Marubeni Corp ADR are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong basic indicators, Marubeni Corp is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Sumitomo Corp ADR

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Sumitomo Corp ADR are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong primary indicators, Sumitomo Corp is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Marubeni Corp and Sumitomo Corp

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

The idea behind Marubeni Corp ADR and Sumitomo Corp ADR 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.