Correlation Between Sumitomo Mitsui and DR Horton

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

Diversification Opportunities for Sumitomo Mitsui and DR Horton

0.29

Correlation Coefficient

Sumitomo Mitsui  DR Horton

Modest diversification

The 3 months correlation between Sumitomo and D1HI34 is 0.29. Overlapping area represents the amount of risk that can be diversified away by holding Sumitomo Mitsui Financial and DR Horton in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on DR Horton 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 DR Horton. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of DR Horton has no effect on the direction of Sumitomo Mitsui i.e., Sumitomo Mitsui and DR Horton go up and down completely randomly.

Pair Corralation between Sumitomo Mitsui and DR Horton

Assuming the 90 days trading horizon Sumitomo Mitsui Financial is expected to generate 0.89 times more return on investment than DR Horton. However, Sumitomo Mitsui Financial is 1.13 times less risky than DR Horton. It trades about 0.04 of its potential returns per unit of risk. DR Horton is currently generating about -0.13 per unit of risk. If you would invest  8,856  in Sumitomo Mitsui Financial on December 25, 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 Together
Strength	Very Weak
Accuracy	67.8%
Values	Daily Returns

Sumitomo Mitsui Financial  vs.  DR Horton

Sumitomo Mitsui Financial

Risk-Adjusted Performance

Weak

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 current stock price disturbance, may contribute to short-term losses for the investors.

DR Horton

Risk-Adjusted Performance

Very Weak

Over the last 90 days DR Horton 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 technical 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 DR Horton

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

The idea behind Sumitomo Mitsui Financial and DR Horton 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.