Correlation Between Mastercard Incorporated and Sumitomo Mitsui

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

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

Diversification Opportunities for Mastercard Incorporated and Sumitomo Mitsui

0.92

Correlation Coefficient

Mastercard Incorporated  Sumitomo Mitsui

Almost no diversification

The 3 months correlation between Mastercard and Sumitomo is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding Mastercard Incorporated and Sumitomo Mitsui Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sumitomo Mitsui Financial and Mastercard Incorporated 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 Mastercard Incorporated 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 Financial has no effect on the direction of Mastercard Incorporated i.e., Mastercard Incorporated and Sumitomo Mitsui go up and down completely randomly.

Pair Corralation between Mastercard Incorporated and Sumitomo Mitsui

Assuming the 90 days trading horizon Mastercard Incorporated is expected to generate 1.67 times less return on investment than Sumitomo Mitsui. But when comparing it to its historical volatility, Mastercard Incorporated is 1.37 times less risky than Sumitomo Mitsui. It trades about 0.2 of its potential returns per unit of risk. Sumitomo Mitsui Financial is currently generating about 0.24 of returns per unit of risk over similar time horizon. If you would invest  6,819  in Sumitomo Mitsui Financial on September 18, 2024 and sell it today you would earn a total of  2,208  from holding Sumitomo Mitsui Financial or generate 32.38% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	93.65%
Values	Daily Returns

Mastercard Incorporated  vs.  Sumitomo Mitsui Financial

Mastercard Incorporated

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Mastercard Incorporated are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak fundamental indicators, Mastercard Incorporated sustained solid returns over the last few months and may actually be approaching a breakup point.

Sumitomo Mitsui Financial

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Sumitomo Mitsui Financial are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak primary indicators, Sumitomo Mitsui sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Mastercard Incorporated and Sumitomo Mitsui

The main advantage of trading using opposite Mastercard Incorporated and Sumitomo Mitsui positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Mastercard Incorporated 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 Mastercard Incorporated and Sumitomo Mitsui Financial 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.