Correlation Between VULCAN MATERIALS and Sumitomo

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

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

Diversification Opportunities for VULCAN MATERIALS and Sumitomo

-0.02

Correlation Coefficient

VULCAN MATERIALS  Sumitomo

Good diversification

The 3 months correlation between VULCAN and Sumitomo is -0.02. Overlapping area represents the amount of risk that can be diversified away by holding VULCAN MATERIALS and Sumitomo in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sumitomo and VULCAN MATERIALS 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 VULCAN MATERIALS are associated (or correlated) with Sumitomo. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sumitomo has no effect on the direction of VULCAN MATERIALS i.e., VULCAN MATERIALS and Sumitomo go up and down completely randomly.

Pair Corralation between VULCAN MATERIALS and Sumitomo

Assuming the 90 days trading horizon VULCAN MATERIALS is expected to generate 0.66 times more return on investment than Sumitomo. However, VULCAN MATERIALS is 1.51 times less risky than Sumitomo. It trades about 0.06 of its potential returns per unit of risk. Sumitomo is currently generating about 0.03 per unit of risk. If you would invest  16,395  in VULCAN MATERIALS on October 5, 2024 and sell it today you would earn a total of  8,605  from holding VULCAN MATERIALS or generate 52.49% return on investment over 90 days.

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

VULCAN MATERIALS  vs.  Sumitomo

VULCAN MATERIALS

Risk-Adjusted Performance

0 of 100

OK

Over the last 90 days VULCAN MATERIALS has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively uncertain basic indicators, VULCAN MATERIALS unveiled solid returns over the last few months and may actually be approaching a breakup point.

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 current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with VULCAN MATERIALS and Sumitomo

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

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