Correlation Between Sumitomo and CITIC

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

By analyzing existing cross correlation between Sumitomo and CITIC LTD ADR5, you can compare the effects of market volatilities on Sumitomo and CITIC 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 with a short position of CITIC. Check out your portfolio center. Please also check ongoing floating volatility patterns of Sumitomo and CITIC.

Diversification Opportunities for Sumitomo and CITIC

0.11

Correlation Coefficient

Sumitomo  CITIC

Average diversification

The 3 months correlation between Sumitomo and CITIC is 0.11. Overlapping area represents the amount of risk that can be diversified away by holding Sumitomo and CITIC LTD ADR5 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CITIC LTD ADR5 and Sumitomo 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 are associated (or correlated) with CITIC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CITIC LTD ADR5 has no effect on the direction of Sumitomo i.e., Sumitomo and CITIC go up and down completely randomly.

Pair Corralation between Sumitomo and CITIC

Assuming the 90 days trading horizon Sumitomo is expected to under-perform the CITIC. In addition to that, Sumitomo is 1.45 times more volatile than CITIC LTD ADR5. It trades about 0.0 of its total potential returns per unit of risk. CITIC LTD ADR5 is currently generating about 0.04 per unit of volatility. If you would invest  515.00  in CITIC LTD ADR5 on September 23, 2024 and sell it today you would earn a total of  5.00  from holding CITIC LTD ADR5 or generate 0.97% return on investment over 90 days.

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

Sumitomo  vs.  CITIC LTD ADR5

Sumitomo

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Sumitomo has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable primary indicators, Sumitomo is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

CITIC LTD ADR5

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in CITIC LTD ADR5 are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain technical and fundamental indicators, CITIC reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Sumitomo and CITIC

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

The idea behind Sumitomo and CITIC LTD ADR5 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.