Correlation Between Marubeni and Sumitomo Corp

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

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

Diversification Opportunities for Marubeni and Sumitomo Corp

0.43

Correlation Coefficient

Marubeni  Sumitomo Corp

Very weak diversification

The 3 months correlation between Marubeni and Sumitomo is 0.43. Overlapping area represents the amount of risk that can be diversified away by holding Marubeni and Sumitomo Corp ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sumitomo Corp ADR and Marubeni 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 Marubeni are associated (or correlated) with Sumitomo Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sumitomo Corp ADR has no effect on the direction of Marubeni i.e., Marubeni and Sumitomo Corp go up and down completely randomly.

Pair Corralation between Marubeni and Sumitomo Corp

Assuming the 90 days horizon Marubeni is expected to generate 2.79 times more return on investment than Sumitomo Corp. However, Marubeni is 2.79 times more volatile than Sumitomo Corp ADR. It trades about 0.03 of its potential returns per unit of risk. Sumitomo Corp ADR is currently generating about -0.03 per unit of risk. If you would invest  1,548  in Marubeni on September 5, 2024 and sell it today you would earn a total of  40.00  from holding Marubeni or generate 2.58% return on investment over 90 days.

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

Marubeni  vs.  Sumitomo Corp ADR

Marubeni

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Marubeni are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Marubeni may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Sumitomo Corp ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Sumitomo Corp ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong primary indicators, Sumitomo Corp is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Marubeni and Sumitomo Corp

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

The idea behind Marubeni and Sumitomo Corp ADR 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.

Check out your portfolio center.

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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.