Correlation Between Berkshire Hathaway and Sumitomo Mitsui

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

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

Diversification Opportunities for Berkshire Hathaway and Sumitomo Mitsui

0.92

Correlation Coefficient

Berkshire Hathaway  Sumitomo Mitsui

Almost no diversification

The 3 months correlation between Berkshire and Sumitomo is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding Berkshire Hathaway 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 Berkshire Hathaway 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 Berkshire Hathaway 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 Berkshire Hathaway i.e., Berkshire Hathaway and Sumitomo Mitsui go up and down completely randomly.

Pair Corralation between Berkshire Hathaway and Sumitomo Mitsui

Assuming the 90 days trading horizon Berkshire Hathaway is expected to generate 2.39 times less return on investment than Sumitomo Mitsui. But when comparing it to its historical volatility, Berkshire Hathaway is 1.71 times less risky than Sumitomo Mitsui. It trades about 0.14 of its potential returns per unit of risk. Sumitomo Mitsui Financial is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest  7,154  in Sumitomo Mitsui Financial on September 12, 2024 and sell it today you would earn a total of  1,882  from holding Sumitomo Mitsui Financial or generate 26.31% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	95.16%
Values	Daily Returns

Berkshire Hathaway  vs.  Sumitomo Mitsui Financial

Berkshire Hathaway

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Berkshire Hathaway are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat uncertain basic indicators, Berkshire Hathaway may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Sumitomo Mitsui Financial

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Sumitomo Mitsui Financial are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak primary indicators, Sumitomo Mitsui sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Berkshire Hathaway and Sumitomo Mitsui

The main advantage of trading using opposite Berkshire Hathaway and Sumitomo Mitsui positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Berkshire Hathaway 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 Berkshire Hathaway 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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.