Correlation Between Mitsubishi UFJ and Sumitomo Mitsui

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

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

Diversification Opportunities for Mitsubishi UFJ and Sumitomo Mitsui

0.65

Correlation Coefficient

Mitsubishi UFJ  Sumitomo Mitsui

Poor diversification

The 3 months correlation between Mitsubishi and Sumitomo is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Mitsubishi UFJ Financial 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 Mitsubishi UFJ 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 Mitsubishi UFJ Financial 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 Mitsubishi UFJ i.e., Mitsubishi UFJ and Sumitomo Mitsui go up and down completely randomly.

Pair Corralation between Mitsubishi UFJ and Sumitomo Mitsui

Assuming the 90 days horizon Mitsubishi UFJ Financial is expected to generate 1.73 times more return on investment than Sumitomo Mitsui. However, Mitsubishi UFJ is 1.73 times more volatile than Sumitomo Mitsui Trust. It trades about 0.09 of its potential returns per unit of risk. Sumitomo Mitsui Trust is currently generating about -0.03 per unit of risk. If you would invest  1,005  in Mitsubishi UFJ Financial on September 26, 2024 and sell it today you would earn a total of  145.00  from holding Mitsubishi UFJ Financial or generate 14.43% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.44%
Values	Daily Returns

Mitsubishi UFJ Financial  vs.  Sumitomo Mitsui Trust

Mitsubishi UFJ Financial

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Mitsubishi UFJ Financial are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile forward-looking indicators, Mitsubishi UFJ 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. In spite of fairly strong basic indicators, Sumitomo Mitsui is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Mitsubishi UFJ and Sumitomo Mitsui

The main advantage of trading using opposite Mitsubishi UFJ and Sumitomo Mitsui positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Mitsubishi UFJ 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 Mitsubishi UFJ Financial 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.