Correlation Between Sumitomo Mitsui and Marfrig Global

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

Diversification Opportunities for Sumitomo Mitsui and Marfrig Global

0.93

Correlation Coefficient

Sumitomo Mitsui  Marfrig Global

Almost no diversification

The 3 months correlation between Sumitomo and Marfrig is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding Sumitomo Mitsui Financial and Marfrig Global Foods in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Marfrig Global Foods 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 Marfrig Global. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Marfrig Global Foods has no effect on the direction of Sumitomo Mitsui i.e., Sumitomo Mitsui and Marfrig Global go up and down completely randomly.

Pair Corralation between Sumitomo Mitsui and Marfrig Global

Assuming the 90 days trading horizon Sumitomo Mitsui Financial is expected to generate 0.67 times more return on investment than Marfrig Global. However, Sumitomo Mitsui Financial is 1.5 times less risky than Marfrig Global. It trades about 0.05 of its potential returns per unit of risk. Marfrig Global Foods is currently generating about -0.17 per unit of risk. If you would invest  8,748  in Sumitomo Mitsui Financial on October 23, 2024 and sell it today you would earn a total of  90.00  from holding Sumitomo Mitsui Financial or generate 1.03% return on investment over 90 days.

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

Sumitomo Mitsui Financial  vs.  Marfrig Global Foods

Sumitomo Mitsui Financial

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Sumitomo Mitsui Financial are ranked lower than 13 (%) 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.

Marfrig Global Foods

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Marfrig Global Foods are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Marfrig Global unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Sumitomo Mitsui and Marfrig Global

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

The idea behind Sumitomo Mitsui Financial and Marfrig Global Foods 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 Anywhere module to track or share privately all of your investments from the convenience of any device.