Correlation Between Sumitomo Mitsui and Lanxess AG

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

Diversification Opportunities for Sumitomo Mitsui and Lanxess AG

-0.57

Correlation Coefficient

Sumitomo Mitsui  Lanxess AG

Excellent diversification

The 3 months correlation between Sumitomo and Lanxess is -0.57. Overlapping area represents the amount of risk that can be diversified away by holding Sumitomo Mitsui Financial and Lanxess AG in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lanxess AG 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 Lanxess AG. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lanxess AG has no effect on the direction of Sumitomo Mitsui i.e., Sumitomo Mitsui and Lanxess AG go up and down completely randomly.

Pair Corralation between Sumitomo Mitsui and Lanxess AG

Assuming the 90 days horizon Sumitomo Mitsui Financial is expected to generate 15.24 times more return on investment than Lanxess AG. However, Sumitomo Mitsui is 15.24 times more volatile than Lanxess AG. It trades about 0.11 of its potential returns per unit of risk. Lanxess AG is currently generating about -0.05 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	Very Weak
Accuracy	81.42%
Values	Daily Returns

Sumitomo Mitsui Financial  vs.  Lanxess AG

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.

Lanxess AG

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Lanxess AG has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unsteady performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Sumitomo Mitsui and Lanxess AG

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

The idea behind Sumitomo Mitsui Financial and Lanxess AG 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.