Correlation Between Sumitomo Mitsui and Bread Financial

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

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

Diversification Opportunities for Sumitomo Mitsui and Bread Financial

-0.12

Correlation Coefficient

Sumitomo Mitsui  Bread Financial

Good diversification

The 3 months correlation between Sumitomo and Bread is -0.12. Overlapping area represents the amount of risk that can be diversified away by holding Sumitomo Mitsui Financial and Bread Financial Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bread Financial Holdings and Sumitomo Mitsui 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 Sumitomo Mitsui Financial are associated (or correlated) with Bread Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bread Financial Holdings has no effect on the direction of Sumitomo Mitsui i.e., Sumitomo Mitsui and Bread Financial go up and down completely randomly.

Pair Corralation between Sumitomo Mitsui and Bread Financial

Assuming the 90 days trading horizon Sumitomo Mitsui Financial is expected to generate 0.57 times more return on investment than Bread Financial. However, Sumitomo Mitsui Financial is 1.75 times less risky than Bread Financial. It trades about 0.04 of its potential returns per unit of risk. Bread Financial Holdings is currently generating about -0.16 per unit of risk. If you would invest  8,856  in Sumitomo Mitsui Financial on December 24, 2024 and sell it today you would earn a total of  252.00  from holding Sumitomo Mitsui Financial or generate 2.85% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	93.22%
Values	Daily Returns

Sumitomo Mitsui Financial  vs.  Bread Financial Holdings

Sumitomo Mitsui Financial

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Sumitomo Mitsui Financial are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong primary indicators, Sumitomo Mitsui is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the investors.

Bread Financial Holdings

Risk-Adjusted Performance

Very Weak

Over the last 90 days Bread Financial Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's essential indicators remain somewhat strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Sumitomo Mitsui and Bread Financial

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

The idea behind Sumitomo Mitsui Financial and Bread Financial Holdings 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 Portfolio Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.