Correlation Between Sumitomo Mitsui and ASPEN TECHINC

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

Diversification Opportunities for Sumitomo Mitsui and ASPEN TECHINC

0.56

Correlation Coefficient

Sumitomo Mitsui  ASPEN TECHINC

Very weak diversification

The 3 months correlation between Sumitomo and ASPEN is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding Sumitomo Mitsui Financial and ASPEN TECHINC DL in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ASPEN TECHINC DL 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 Financial are associated (or correlated) with ASPEN TECHINC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ASPEN TECHINC DL has no effect on the direction of Sumitomo Mitsui i.e., Sumitomo Mitsui and ASPEN TECHINC go up and down completely randomly.

Pair Corralation between Sumitomo Mitsui and ASPEN TECHINC

Assuming the 90 days horizon Sumitomo Mitsui Financial is expected to generate 2.2 times more return on investment than ASPEN TECHINC. However, Sumitomo Mitsui is 2.2 times more volatile than ASPEN TECHINC DL. It trades about 0.06 of its potential returns per unit of risk. ASPEN TECHINC DL is currently generating about 0.03 per unit of risk. If you would invest  2,228  in Sumitomo Mitsui Financial on December 21, 2024 and sell it today you would earn a total of  172.00  from holding Sumitomo Mitsui Financial or generate 7.72% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	91.53%
Values	Daily Returns

Sumitomo Mitsui Financial  vs.  ASPEN TECHINC DL

Sumitomo Mitsui Financial

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Sumitomo Mitsui Financial are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, Sumitomo Mitsui may actually be approaching a critical reversion point that can send shares even higher in April 2025.

ASPEN TECHINC DL

Risk-Adjusted Performance

Weak

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

Pair Trading with Sumitomo Mitsui and ASPEN TECHINC

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

The idea behind Sumitomo Mitsui Financial and ASPEN TECHINC DL 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.