Correlation Between Sumitomo Mitsui and Equity Residential
Can any of the company-specific risk be diversified away by investing in both Sumitomo Mitsui and Equity Residential 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 Equity Residential 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 Equity Residential, you can compare the effects of market volatilities on Sumitomo Mitsui and Equity Residential 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 Equity Residential. Check out your portfolio center. Please also check ongoing floating volatility patterns of Sumitomo Mitsui and Equity Residential.
Diversification Opportunities for Sumitomo Mitsui and Equity Residential
0.67 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Sumitomo and Equity is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Sumitomo Mitsui Financial and Equity Residential in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Equity Residential 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 Equity Residential. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Equity Residential has no effect on the direction of Sumitomo Mitsui i.e., Sumitomo Mitsui and Equity Residential go up and down completely randomly.
Pair Corralation between Sumitomo Mitsui and Equity Residential
Assuming the 90 days trading horizon Sumitomo Mitsui is expected to generate 1.43 times less return on investment than Equity Residential. But when comparing it to its historical volatility, Sumitomo Mitsui Financial is 1.55 times less risky than Equity Residential. It trades about 0.15 of its potential returns per unit of risk. Equity Residential is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest 20,240 in Equity Residential on September 24, 2024 and sell it today you would earn a total of 1,980 from holding Equity Residential or generate 9.78% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Significant |
Accuracy | 100.0% |
Values | Daily Returns |
Sumitomo Mitsui Financial vs. Equity Residential
Performance |
Timeline |
Sumitomo Mitsui Financial |
Equity Residential |
Sumitomo Mitsui and Equity Residential Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Sumitomo Mitsui and Equity Residential
The main advantage of trading using opposite Sumitomo Mitsui and Equity Residential positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Sumitomo Mitsui position performs unexpectedly, Equity Residential 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 Equity Residential will offset losses from the drop in Equity Residential's long position.Sumitomo Mitsui vs. Mitsubishi UFJ Financial | Sumitomo Mitsui vs. Banco Santander SA | Sumitomo Mitsui vs. Visa Inc | Sumitomo Mitsui vs. Airbnb Inc |
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Check out your portfolio center.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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.
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