Correlation Between Sumitomo Mitsui and Granite Construction

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

Diversification Opportunities for Sumitomo Mitsui and Granite Construction

-0.31
  Correlation Coefficient

Very good diversification

The 3 months correlation between Sumitomo and Granite is -0.31. Overlapping area represents the amount of risk that can be diversified away by holding Sumitomo Mitsui Construction and Granite Construction in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Granite Construction 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 Granite Construction. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Granite Construction has no effect on the direction of Sumitomo Mitsui i.e., Sumitomo Mitsui and Granite Construction go up and down completely randomly.

Pair Corralation between Sumitomo Mitsui and Granite Construction

Assuming the 90 days horizon Sumitomo Mitsui is expected to generate 5.58 times less return on investment than Granite Construction. But when comparing it to its historical volatility, Sumitomo Mitsui Construction is 1.32 times less risky than Granite Construction. It trades about 0.07 of its potential returns per unit of risk. Granite Construction is currently generating about 0.28 of returns per unit of risk over similar time horizon. If you would invest  6,488  in Granite Construction on September 10, 2024 and sell it today you would earn a total of  2,712  from holding Granite Construction or generate 41.8% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthInsignificant
Accuracy100.0%
ValuesDaily Returns

Sumitomo Mitsui Construction  vs.  Granite Construction

 Performance 
       Timeline  
Sumitomo Mitsui Cons 

Risk-Adjusted Performance

5 of 100

 
Weak
 
Strong
Modest
Compared to the overall equity markets, risk-adjusted returns on investments in Sumitomo Mitsui Construction are ranked lower than 5 (%) 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 newest stock price disturbance, may contribute to mid-run losses for the stockholders.
Granite Construction 

Risk-Adjusted Performance

22 of 100

 
Weak
 
Strong
Solid
Compared to the overall equity markets, risk-adjusted returns on investments in Granite Construction are ranked lower than 22 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile basic indicators, Granite Construction unveiled solid returns over the last few months and may actually be approaching a breakup point.

Sumitomo Mitsui and Granite Construction Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Sumitomo Mitsui and Granite Construction

The main advantage of trading using opposite Sumitomo Mitsui and Granite Construction positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Sumitomo Mitsui position performs unexpectedly, Granite 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 Granite Construction will offset losses from the drop in Granite Construction's long position.
The idea behind Sumitomo Mitsui Construction and Granite Construction 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.

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