Correlation Between Mitsubishi Corp and Sumitomo Corp

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

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

Diversification Opportunities for Mitsubishi Corp and Sumitomo Corp

0.88

Correlation Coefficient

Mitsubishi Corp  Sumitomo Corp

Very poor diversification

The 3 months correlation between Mitsubishi and Sumitomo is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Mitsubishi Corp 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 Mitsubishi Corp 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 Mitsubishi Corp 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 Mitsubishi Corp i.e., Mitsubishi Corp and Sumitomo Corp go up and down completely randomly.

Pair Corralation between Mitsubishi Corp and Sumitomo Corp

Assuming the 90 days horizon Mitsubishi Corp is expected to under-perform the Sumitomo Corp. In addition to that, Mitsubishi Corp is 1.23 times more volatile than Sumitomo Corp ADR. It trades about -0.12 of its total potential returns per unit of risk. Sumitomo Corp ADR is currently generating about -0.07 per unit of volatility. If you would invest  2,318  in Sumitomo Corp ADR on September 3, 2024 and sell it today you would lose (172.00) from holding Sumitomo Corp ADR or give up 7.42% of portfolio value over 90 days.

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

Mitsubishi Corp  vs.  Sumitomo Corp ADR

Mitsubishi Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Mitsubishi Corp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's technical indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

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 latest fragile performance, the Stock's primary indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Mitsubishi Corp and Sumitomo Corp

The main advantage of trading using opposite Mitsubishi Corp and Sumitomo Corp positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Mitsubishi Corp 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 Mitsubishi Corp 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.