Correlation Between Sumitomo Mitsui and ITOCHU

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

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

Diversification Opportunities for Sumitomo Mitsui and ITOCHU

-0.09

Correlation Coefficient

Sumitomo Mitsui  ITOCHU

Good diversification

The 3 months correlation between Sumitomo and ITOCHU is -0.09. Overlapping area represents the amount of risk that can be diversified away by holding Sumitomo Mitsui Trust and ITOCHU in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ITOCHU and Sumitomo Mitsui 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 Mitsui Trust are associated (or correlated) with ITOCHU. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ITOCHU has no effect on the direction of Sumitomo Mitsui i.e., Sumitomo Mitsui and ITOCHU go up and down completely randomly.

Pair Corralation between Sumitomo Mitsui and ITOCHU

Assuming the 90 days horizon Sumitomo Mitsui Trust is expected to under-perform the ITOCHU. But the pink sheet apears to be less risky and, when comparing its historical volatility, Sumitomo Mitsui Trust is 2.87 times less risky than ITOCHU. The pink sheet trades about -0.31 of its potential returns per unit of risk. The ITOCHU is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest  4,963  in ITOCHU on October 15, 2024 and sell it today you would lose (125.00) from holding ITOCHU or give up 2.52% of portfolio value over 90 days.

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

Sumitomo Mitsui Trust  vs.  ITOCHU

Sumitomo Mitsui Trust

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Sumitomo Mitsui Trust are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong basic indicators, Sumitomo Mitsui is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

ITOCHU

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ITOCHU has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable fundamental indicators, ITOCHU 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 Mitsui and ITOCHU

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

The idea behind Sumitomo Mitsui Trust and ITOCHU 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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..