Correlation Between ASPEN TECHINC and Sumitomo Mitsui

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

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

Diversification Opportunities for ASPEN TECHINC and Sumitomo Mitsui

0.93

Correlation Coefficient

ASPEN TECHINC  Sumitomo Mitsui

Almost no diversification

The 3 months correlation between ASPEN and Sumitomo is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding ASPEN TECHINC DL and Sumitomo Mitsui Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sumitomo Mitsui Financial and ASPEN TECHINC 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 ASPEN TECHINC DL are associated (or correlated) with Sumitomo Mitsui. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sumitomo Mitsui Financial has no effect on the direction of ASPEN TECHINC i.e., ASPEN TECHINC and Sumitomo Mitsui go up and down completely randomly.

Pair Corralation between ASPEN TECHINC and Sumitomo Mitsui

Assuming the 90 days horizon ASPEN TECHINC DL is expected to generate 0.46 times more return on investment than Sumitomo Mitsui. However, ASPEN TECHINC DL is 2.17 times less risky than Sumitomo Mitsui. It trades about 0.13 of its potential returns per unit of risk. Sumitomo Mitsui Financial is currently generating about -0.09 per unit of risk. If you would invest  23,400  in ASPEN TECHINC DL on October 10, 2024 and sell it today you would earn a total of  400.00  from holding ASPEN TECHINC DL or generate 1.71% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	94.44%
Values	Daily Returns

ASPEN TECHINC DL  vs.  Sumitomo Mitsui Financial

ASPEN TECHINC DL

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in ASPEN TECHINC DL are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, ASPEN TECHINC reported solid returns over the last few months and may actually be approaching a breakup point.

Sumitomo Mitsui Financial

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Sumitomo Mitsui Financial are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, Sumitomo Mitsui reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with ASPEN TECHINC and Sumitomo Mitsui

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

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