Correlation Between SUMITOMO and Everus Construction

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

By analyzing existing cross correlation between SUMITOMO MITSUI FINANCIAL and Everus Construction Group, you can compare the effects of market volatilities on SUMITOMO and Everus Construction 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 Everus Construction. Check out your portfolio center. Please also check ongoing floating volatility patterns of SUMITOMO and Everus Construction.

Diversification Opportunities for SUMITOMO and Everus Construction

0.07

Correlation Coefficient

SUMITOMO  Everus Construction

Significant diversification

The 3 months correlation between SUMITOMO and Everus is 0.07. Overlapping area represents the amount of risk that can be diversified away by holding SUMITOMO MITSUI FINANCIAL and Everus Construction Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Everus Construction 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 MITSUI FINANCIAL are associated (or correlated) with Everus Construction. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Everus Construction has no effect on the direction of SUMITOMO i.e., SUMITOMO and Everus Construction go up and down completely randomly.

Pair Corralation between SUMITOMO and Everus Construction

Assuming the 90 days trading horizon SUMITOMO MITSUI FINANCIAL is expected to under-perform the Everus Construction. But the bond apears to be less risky and, when comparing its historical volatility, SUMITOMO MITSUI FINANCIAL is 3.91 times less risky than Everus Construction. The bond trades about -0.15 of its potential returns per unit of risk. The Everus Construction Group is currently generating about 0.27 of returns per unit of risk over similar time horizon. If you would invest  4,900  in Everus Construction Group on September 12, 2024 and sell it today you would earn a total of  1,716  from holding Everus Construction Group or generate 35.02% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	58.49%
Values	Daily Returns

SUMITOMO MITSUI FINANCIAL  vs.  Everus Construction Group

SUMITOMO MITSUI FINANCIAL

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days SUMITOMO MITSUI FINANCIAL has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest uncertain performance, the Bond's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for SUMITOMO MITSUI FINANCIAL investors.

Everus Construction

Risk-Adjusted Performance

21 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Everus Construction Group are ranked lower than 21 (%) of all global equities and portfolios over the last 90 days. Despite nearly conflicting fundamental indicators, Everus Construction reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with SUMITOMO and Everus Construction

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

The idea behind SUMITOMO MITSUI FINANCIAL and Everus Construction Group 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.