Correlation Between Sumitomo Mitsui and SPDR Gold

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

By analyzing existing cross correlation between Sumitomo Mitsui Construction and SPDR Gold Shares, you can compare the effects of market volatilities on Sumitomo Mitsui and SPDR Gold 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 SPDR Gold. Check out your portfolio center. Please also check ongoing floating volatility patterns of Sumitomo Mitsui and SPDR Gold.

Diversification Opportunities for Sumitomo Mitsui and SPDR Gold

-0.13

Correlation Coefficient

Sumitomo Mitsui  SPDR Gold

Good diversification

The 3 months correlation between Sumitomo and SPDR is -0.13. Overlapping area represents the amount of risk that can be diversified away by holding Sumitomo Mitsui Construction and SPDR Gold Shares in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPDR Gold Shares 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 Construction are associated (or correlated) with SPDR Gold. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SPDR Gold Shares has no effect on the direction of Sumitomo Mitsui i.e., Sumitomo Mitsui and SPDR Gold go up and down completely randomly.

Pair Corralation between Sumitomo Mitsui and SPDR Gold

Assuming the 90 days horizon Sumitomo Mitsui is expected to generate 1.19 times less return on investment than SPDR Gold. In addition to that, Sumitomo Mitsui is 1.74 times more volatile than SPDR Gold Shares. It trades about 0.05 of its total potential returns per unit of risk. SPDR Gold Shares is currently generating about 0.1 per unit of volatility. If you would invest  21,908  in SPDR Gold Shares on September 27, 2024 and sell it today you would earn a total of  1,235  from holding SPDR Gold Shares or generate 5.64% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	96.83%
Values	Daily Returns

Sumitomo Mitsui Construction  vs.  SPDR Gold Shares

Sumitomo Mitsui Cons

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Sumitomo Mitsui Construction are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Sumitomo Mitsui is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

SPDR Gold Shares

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in SPDR Gold Shares are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, SPDR Gold is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Sumitomo Mitsui and SPDR Gold

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

The idea behind Sumitomo Mitsui Construction and SPDR Gold Shares 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 Top Crypto Exchanges module to search and analyze digital assets across top global cryptocurrency exchanges.