Correlation Between Silver Spruce and Sumitomo Metal

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

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

Diversification Opportunities for Silver Spruce and Sumitomo Metal

0.01

Correlation Coefficient

Silver Spruce  Sumitomo Metal

Significant diversification

The 3 months correlation between Silver and Sumitomo is 0.01. Overlapping area represents the amount of risk that can be diversified away by holding Silver Spruce Resources and Sumitomo Metal Mining in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sumitomo Metal Mining and Silver Spruce 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 Silver Spruce Resources are associated (or correlated) with Sumitomo Metal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sumitomo Metal Mining has no effect on the direction of Silver Spruce i.e., Silver Spruce and Sumitomo Metal go up and down completely randomly.

Pair Corralation between Silver Spruce and Sumitomo Metal

Assuming the 90 days horizon Silver Spruce Resources is expected to generate 5.62 times more return on investment than Sumitomo Metal. However, Silver Spruce is 5.62 times more volatile than Sumitomo Metal Mining. It trades about 0.01 of its potential returns per unit of risk. Sumitomo Metal Mining is currently generating about -0.09 per unit of risk. If you would invest  0.92  in Silver Spruce Resources on October 10, 2024 and sell it today you would lose (0.59) from holding Silver Spruce Resources or give up 64.13% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Silver Spruce Resources  vs.  Sumitomo Metal Mining

Silver Spruce Resources

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Silver Spruce Resources has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's fundamental drivers remain nearly stable which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Sumitomo Metal Mining

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Sumitomo Metal Mining has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile 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 Silver Spruce and Sumitomo Metal

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

The idea behind Silver Spruce Resources and Sumitomo Metal Mining 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.