Correlation Between Sumitomo Mitsui and Mitsubishi UFJ

Can any of the company-specific risk be diversified away by investing in both Sumitomo Mitsui and Mitsubishi UFJ 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 Mitsubishi UFJ 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 Mitsubishi UFJ Financial, you can compare the effects of market volatilities on Sumitomo Mitsui and Mitsubishi UFJ 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 Mitsubishi UFJ. Check out your portfolio center. Please also check ongoing floating volatility patterns of Sumitomo Mitsui and Mitsubishi UFJ.

Diversification Opportunities for Sumitomo Mitsui and Mitsubishi UFJ

0.65

Correlation Coefficient

Sumitomo Mitsui  Mitsubishi UFJ

Poor diversification

The 3 months correlation between Sumitomo and Mitsubishi is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Sumitomo Mitsui Trust and Mitsubishi UFJ Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mitsubishi UFJ Financial 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 Mitsubishi UFJ. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Mitsubishi UFJ Financial has no effect on the direction of Sumitomo Mitsui i.e., Sumitomo Mitsui and Mitsubishi UFJ go up and down completely randomly.

Pair Corralation between Sumitomo Mitsui and Mitsubishi UFJ

Assuming the 90 days horizon Sumitomo Mitsui is expected to generate 3.24 times less return on investment than Mitsubishi UFJ. But when comparing it to its historical volatility, Sumitomo Mitsui Trust is 1.83 times less risky than Mitsubishi UFJ. It trades about 0.02 of its potential returns per unit of risk. Mitsubishi UFJ Financial is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  1,046  in Mitsubishi UFJ Financial on September 27, 2024 and sell it today you would earn a total of  104.00  from holding Mitsubishi UFJ Financial or generate 9.94% return on investment over 90 days.

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

Sumitomo Mitsui Trust  vs.  Mitsubishi UFJ Financial

Sumitomo Mitsui Trust

Risk-Adjusted Performance

1 of 100

Very Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Sumitomo Mitsui Trust are ranked lower than 1 (%) 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 latest stock price disturbance, may contribute to short-term losses for the investors.

Mitsubishi UFJ Financial

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Mitsubishi UFJ Financial are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile forward-looking indicators, Mitsubishi UFJ reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Sumitomo Mitsui and Mitsubishi UFJ

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

The idea behind Sumitomo Mitsui Trust and Mitsubishi UFJ Financial 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.