Correlation Between Sumitomo Mitsui and Tecsys

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

Diversification Opportunities for Sumitomo Mitsui and Tecsys

0.72

Correlation Coefficient

Sumitomo Mitsui  Tecsys

Poor diversification

The 3 months correlation between Sumitomo and Tecsys is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Sumitomo Mitsui Financial and Tecsys Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tecsys Inc 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 Tecsys. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tecsys Inc has no effect on the direction of Sumitomo Mitsui i.e., Sumitomo Mitsui and Tecsys go up and down completely randomly.

Pair Corralation between Sumitomo Mitsui and Tecsys

Given the investment horizon of 90 days Sumitomo Mitsui Financial is expected to generate 1.28 times more return on investment than Tecsys. However, Sumitomo Mitsui is 1.28 times more volatile than Tecsys Inc. It trades about 0.14 of its potential returns per unit of risk. Tecsys Inc is currently generating about 0.07 per unit of risk. If you would invest  1,277  in Sumitomo Mitsui Financial on October 21, 2024 and sell it today you would earn a total of  192.00  from holding Sumitomo Mitsui Financial or generate 15.04% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	95.38%
Values	Daily Returns

Sumitomo Mitsui Financial  vs.  Tecsys Inc

Sumitomo Mitsui Financial

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Sumitomo Mitsui Financial are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak technical and fundamental indicators, Sumitomo Mitsui reported solid returns over the last few months and may actually be approaching a breakup point.

Tecsys Inc

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Tecsys Inc are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly abnormal basic indicators, Tecsys may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Sumitomo Mitsui and Tecsys

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

The idea behind Sumitomo Mitsui Financial and Tecsys Inc 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.

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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.