Correlation Between Sumitomo Mitsui and Incitec Pivot

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

Diversification Opportunities for Sumitomo Mitsui and Incitec Pivot

-0.29

Correlation Coefficient

Sumitomo Mitsui  Incitec Pivot

Very good diversification

The 3 months correlation between Sumitomo and Incitec is -0.29. Overlapping area represents the amount of risk that can be diversified away by holding Sumitomo Mitsui Financial and Incitec Pivot Ltd in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Incitec Pivot 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 Incitec Pivot. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Incitec Pivot has no effect on the direction of Sumitomo Mitsui i.e., Sumitomo Mitsui and Incitec Pivot go up and down completely randomly.

Pair Corralation between Sumitomo Mitsui and Incitec Pivot

Assuming the 90 days horizon Sumitomo Mitsui Financial is expected to generate 14.26 times more return on investment than Incitec Pivot. However, Sumitomo Mitsui is 14.26 times more volatile than Incitec Pivot Ltd. It trades about 0.11 of its potential returns per unit of risk. Incitec Pivot Ltd is currently generating about 0.01 per unit of risk. If you would invest  1,065  in Sumitomo Mitsui Financial on October 3, 2024 and sell it today you would earn a total of  1,195  from holding Sumitomo Mitsui Financial or generate 112.21% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	97.96%
Values	Daily Returns

Sumitomo Mitsui Financial  vs.  Incitec Pivot Ltd

Sumitomo Mitsui Financial

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Sumitomo Mitsui Financial are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, Sumitomo Mitsui reported solid returns over the last few months and may actually be approaching a breakup point.

Incitec Pivot

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Incitec Pivot Ltd are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong basic indicators, Incitec Pivot is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Sumitomo Mitsui and Incitec Pivot

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

The idea behind Sumitomo Mitsui Financial and Incitec Pivot Ltd 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 CEOs Directory module to screen CEOs from public companies around the world.