Correlation Between Sumitomo Mitsui and Best Buy

Can any of the company-specific risk be diversified away by investing in both Sumitomo Mitsui and Best Buy 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 Best Buy 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 Best Buy Co, you can compare the effects of market volatilities on Sumitomo Mitsui and Best Buy 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 Best Buy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Sumitomo Mitsui and Best Buy.

Diversification Opportunities for Sumitomo Mitsui and Best Buy

-0.18

Correlation Coefficient

Sumitomo Mitsui  Best Buy

Good diversification

The 3 months correlation between Sumitomo and Best is -0.18. Overlapping area represents the amount of risk that can be diversified away by holding Sumitomo Mitsui Financial and Best Buy Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Best Buy 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 Best Buy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Best Buy has no effect on the direction of Sumitomo Mitsui i.e., Sumitomo Mitsui and Best Buy go up and down completely randomly.

Pair Corralation between Sumitomo Mitsui and Best Buy

Assuming the 90 days trading horizon Sumitomo Mitsui Financial is expected to generate 0.86 times more return on investment than Best Buy. However, Sumitomo Mitsui Financial is 1.16 times less risky than Best Buy. It trades about 0.13 of its potential returns per unit of risk. Best Buy Co is currently generating about 0.09 per unit of risk. If you would invest  5,856  in Sumitomo Mitsui Financial on October 9, 2024 and sell it today you would earn a total of  3,068  from holding Sumitomo Mitsui Financial or generate 52.39% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.77%
Values	Daily Returns

Sumitomo Mitsui Financial  vs.  Best Buy Co

Sumitomo Mitsui Financial

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Sumitomo Mitsui Financial are ranked lower than 15 (%) 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.

Best Buy

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Best Buy Co has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Best Buy is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Sumitomo Mitsui and Best Buy

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

The idea behind Sumitomo Mitsui Financial and Best Buy Co 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.