Correlation Between Sumitomo Mitsui and Westinghouse Air

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

Diversification Opportunities for Sumitomo Mitsui and Westinghouse Air

-0.03

Correlation Coefficient

Sumitomo Mitsui  Westinghouse Air

Good diversification

The 3 months correlation between Sumitomo and Westinghouse is -0.03. Overlapping area represents the amount of risk that can be diversified away by holding Sumitomo Mitsui Financial and Westinghouse Air Brake in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Westinghouse Air Brake 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 Westinghouse Air. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Westinghouse Air Brake has no effect on the direction of Sumitomo Mitsui i.e., Sumitomo Mitsui and Westinghouse Air go up and down completely randomly.

Pair Corralation between Sumitomo Mitsui and Westinghouse Air

Assuming the 90 days trading horizon Sumitomo Mitsui Financial is expected to generate 0.97 times more return on investment than Westinghouse Air. However, Sumitomo Mitsui Financial is 1.03 times less risky than Westinghouse Air. It trades about 0.02 of its potential returns per unit of risk. Westinghouse Air Brake is currently generating about -0.08 per unit of risk. If you would invest  8,972  in Sumitomo Mitsui Financial on December 28, 2024 and sell it today you would earn a total of  136.00  from holding Sumitomo Mitsui Financial or generate 1.52% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.33%
Values	Daily Returns

Sumitomo Mitsui Financial  vs.  Westinghouse Air Brake

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 1 (%) 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.

Westinghouse Air Brake

Risk-Adjusted Performance

Very Weak

Over the last 90 days Westinghouse Air Brake has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Sumitomo Mitsui and Westinghouse Air

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

The idea behind Sumitomo Mitsui Financial and Westinghouse Air Brake 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.