Correlation Between Sumitomo Metal and Asia Broadband

Can any of the company-specific risk be diversified away by investing in both Sumitomo Metal and Asia Broadband 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 Metal and Asia Broadband into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Sumitomo Metal Mining and Asia Broadband, you can compare the effects of market volatilities on Sumitomo Metal and Asia Broadband 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 Metal with a short position of Asia Broadband. Check out your portfolio center. Please also check ongoing floating volatility patterns of Sumitomo Metal and Asia Broadband.

Diversification Opportunities for Sumitomo Metal and Asia Broadband

0.27

Correlation Coefficient

Sumitomo Metal  Asia Broadband

Modest diversification

The 3 months correlation between Sumitomo and Asia is 0.27. Overlapping area represents the amount of risk that can be diversified away by holding Sumitomo Metal Mining and Asia Broadband in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Asia Broadband and Sumitomo Metal 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 Metal Mining are associated (or correlated) with Asia Broadband. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Asia Broadband has no effect on the direction of Sumitomo Metal i.e., Sumitomo Metal and Asia Broadband go up and down completely randomly.

Pair Corralation between Sumitomo Metal and Asia Broadband

Assuming the 90 days horizon Sumitomo Metal is expected to generate 1.99 times less return on investment than Asia Broadband. But when comparing it to its historical volatility, Sumitomo Metal Mining is 2.2 times less risky than Asia Broadband. It trades about 0.04 of its potential returns per unit of risk. Asia Broadband is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  1.98  in Asia Broadband on December 28, 2024 and sell it today you would earn a total of  0.10  from holding Asia Broadband or generate 5.05% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.36%
Values	Daily Returns

Sumitomo Metal Mining  vs.  Asia Broadband

Sumitomo Metal Mining

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Sumitomo Metal Mining are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong basic indicators, Sumitomo Metal is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Asia Broadband

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Asia Broadband are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak fundamental drivers, Asia Broadband may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Sumitomo Metal and Asia Broadband

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

The idea behind Sumitomo Metal Mining and Asia Broadband 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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.