Correlation Between Natwest Group and Sumitomo Mitsui

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

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

Diversification Opportunities for Natwest Group and Sumitomo Mitsui

0.86

Correlation Coefficient

Natwest Group  Sumitomo Mitsui

Very poor diversification

The 3 months correlation between Natwest and Sumitomo is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Natwest Group PLC 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 Natwest Group 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 Natwest Group PLC 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 Natwest Group i.e., Natwest Group and Sumitomo Mitsui go up and down completely randomly.

Pair Corralation between Natwest Group and Sumitomo Mitsui

Considering the 90-day investment horizon Natwest Group is expected to generate 1.0 times less return on investment than Sumitomo Mitsui. But when comparing it to its historical volatility, Natwest Group PLC is 1.3 times less risky than Sumitomo Mitsui. It trades about 0.17 of its potential returns per unit of risk. Sumitomo Mitsui Financial is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  1,284  in Sumitomo Mitsui Financial on September 13, 2024 and sell it today you would earn a total of  224.00  from holding Sumitomo Mitsui Financial or generate 17.45% return on investment over 90 days.

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

Natwest Group PLC  vs.  Sumitomo Mitsui Financial

Natwest Group PLC

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Natwest Group PLC are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Natwest Group reported solid returns over the last few months and may actually be approaching a breakup point.

Sumitomo Mitsui Financial

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Sumitomo Mitsui Financial are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak technical and fundamental indicators, Sumitomo Mitsui reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Natwest Group and Sumitomo Mitsui

The main advantage of trading using opposite Natwest Group and Sumitomo Mitsui positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Natwest Group 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 Natwest Group PLC 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..