Correlation Between Sumitomo Electric and BKV

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

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

Diversification Opportunities for Sumitomo Electric and BKV

0.59

Correlation Coefficient

Sumitomo Electric  BKV

Very weak diversification

The 3 months correlation between Sumitomo and BKV is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding Sumitomo Electric Industries and BKV Corp. in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BKV Corporation and Sumitomo Electric 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 Electric Industries are associated (or correlated) with BKV. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BKV Corporation has no effect on the direction of Sumitomo Electric i.e., Sumitomo Electric and BKV go up and down completely randomly.

Pair Corralation between Sumitomo Electric and BKV

Assuming the 90 days horizon Sumitomo Electric is expected to generate 4.15 times less return on investment than BKV. In addition to that, Sumitomo Electric is 1.01 times more volatile than BKV Corporation. It trades about 0.06 of its total potential returns per unit of risk. BKV Corporation is currently generating about 0.24 per unit of volatility. If you would invest  1,800  in BKV Corporation on October 13, 2024 and sell it today you would earn a total of  645.00  from holding BKV Corporation or generate 35.83% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	14.95%
Values	Daily Returns

Sumitomo Electric Industries  vs.  BKV Corp.

Sumitomo Electric

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Sumitomo Electric Industries are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Sumitomo Electric may actually be approaching a critical reversion point that can send shares even higher in February 2025.

BKV Corporation

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in BKV Corporation are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. In spite of fairly fragile forward-looking signals, BKV showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Sumitomo Electric and BKV

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

The idea behind Sumitomo Electric Industries and BKV Corporation 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.