Correlation Between Sumitomo and Iwatani

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

By analyzing existing cross correlation between Sumitomo and Iwatani, you can compare the effects of market volatilities on Sumitomo and Iwatani 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 Iwatani. Check out your portfolio center. Please also check ongoing floating volatility patterns of Sumitomo and Iwatani.

Diversification Opportunities for Sumitomo and Iwatani

-0.49

Correlation Coefficient

Sumitomo  Iwatani

Very good diversification

The 3 months correlation between Sumitomo and Iwatani is -0.49. Overlapping area represents the amount of risk that can be diversified away by holding Sumitomo and Iwatani in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Iwatani 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 Iwatani. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Iwatani has no effect on the direction of Sumitomo i.e., Sumitomo and Iwatani go up and down completely randomly.

Pair Corralation between Sumitomo and Iwatani

Assuming the 90 days trading horizon Sumitomo is expected to generate 1.58 times more return on investment than Iwatani. However, Sumitomo is 1.58 times more volatile than Iwatani. It trades about 0.06 of its potential returns per unit of risk. Iwatani is currently generating about -0.07 per unit of risk. If you would invest  2,049  in Sumitomo on December 28, 2024 and sell it today you would earn a total of  163.00  from holding Sumitomo or generate 7.96% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	98.41%
Values	Daily Returns

Sumitomo  vs.  Iwatani

Sumitomo

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Sumitomo are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady primary indicators, Sumitomo may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Iwatani

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Sumitomo and Iwatani

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

The idea behind Sumitomo and Iwatani 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.