Correlation Between Sumitomo Mitsui and TOTAL GABON

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

Diversification Opportunities for Sumitomo Mitsui and TOTAL GABON

0.41

Correlation Coefficient

Sumitomo Mitsui  TOTAL GABON

Very weak diversification

The 3 months correlation between Sumitomo and TOTAL is 0.41. Overlapping area represents the amount of risk that can be diversified away by holding Sumitomo Mitsui Construction and TOTAL GABON in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TOTAL GABON 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 TOTAL GABON. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of TOTAL GABON has no effect on the direction of Sumitomo Mitsui i.e., Sumitomo Mitsui and TOTAL GABON go up and down completely randomly.

Pair Corralation between Sumitomo Mitsui and TOTAL GABON

Assuming the 90 days horizon Sumitomo Mitsui is expected to generate 3.25 times less return on investment than TOTAL GABON. But when comparing it to its historical volatility, Sumitomo Mitsui Construction is 1.66 times less risky than TOTAL GABON. It trades about 0.06 of its potential returns per unit of risk. TOTAL GABON is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  15,850  in TOTAL GABON on September 12, 2024 and sell it today you would earn a total of  2,850  from holding TOTAL GABON or generate 17.98% return on investment over 90 days.

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

Sumitomo Mitsui Construction  vs.  TOTAL GABON

Sumitomo Mitsui Cons

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Sumitomo Mitsui Construction are ranked lower than 4 (%) 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.

TOTAL GABON

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in TOTAL GABON are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, TOTAL GABON exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Sumitomo Mitsui and TOTAL GABON

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

The idea behind Sumitomo Mitsui Construction and TOTAL GABON 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.