Correlation Between Sumitomo Mitsui and Barclays PLC

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

Diversification Opportunities for Sumitomo Mitsui and Barclays PLC

0.77
  Correlation Coefficient

Poor diversification

The 3 months correlation between Sumitomo and Barclays is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Sumitomo Mitsui Financial and Barclays PLC ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Barclays PLC ADR 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 Barclays PLC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Barclays PLC ADR has no effect on the direction of Sumitomo Mitsui i.e., Sumitomo Mitsui and Barclays PLC go up and down completely randomly.

Pair Corralation between Sumitomo Mitsui and Barclays PLC

Assuming the 90 days horizon Sumitomo Mitsui Financial is expected to under-perform the Barclays PLC. In addition to that, Sumitomo Mitsui is 3.23 times more volatile than Barclays PLC ADR. It trades about -0.09 of its total potential returns per unit of risk. Barclays PLC ADR is currently generating about -0.24 per unit of volatility. If you would invest  1,367  in Barclays PLC ADR on October 15, 2024 and sell it today you would lose (98.00) from holding Barclays PLC ADR or give up 7.17% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

Sumitomo Mitsui Financial  vs.  Barclays PLC ADR

 Performance 
       Timeline  
Sumitomo Mitsui Financial 

Risk-Adjusted Performance

2 of 100

 
Weak
 
Strong
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 nearly uncertain basic indicators, Sumitomo Mitsui may actually be approaching a critical reversion point that can send shares even higher in February 2025.
Barclays PLC ADR 

Risk-Adjusted Performance

2 of 100

 
Weak
 
Strong
Weak
Compared to the overall equity markets, risk-adjusted returns on investments in Barclays PLC ADR are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable fundamental indicators, Barclays PLC is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Sumitomo Mitsui and Barclays PLC Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Sumitomo Mitsui and Barclays PLC

The main advantage of trading using opposite Sumitomo Mitsui and Barclays PLC positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Sumitomo Mitsui position performs unexpectedly, Barclays PLC 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 Barclays PLC will offset losses from the drop in Barclays PLC's long position.
The idea behind Sumitomo Mitsui Financial and Barclays PLC ADR 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..

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