Correlation Between Sumitomo Metal and Boliden AB

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

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

Diversification Opportunities for Sumitomo Metal and Boliden AB

0.85

Correlation Coefficient

Sumitomo Metal  Boliden AB

Very poor diversification

The 3 months correlation between Sumitomo and Boliden is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Sumitomo Metal Mining and Boliden AB ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Boliden AB ADR and Sumitomo Metal 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 Metal Mining are associated (or correlated) with Boliden AB. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Boliden AB ADR has no effect on the direction of Sumitomo Metal i.e., Sumitomo Metal and Boliden AB go up and down completely randomly.

Pair Corralation between Sumitomo Metal and Boliden AB

Assuming the 90 days horizon Sumitomo Metal Mining is expected to under-perform the Boliden AB. But the pink sheet apears to be less risky and, when comparing its historical volatility, Sumitomo Metal Mining is 1.09 times less risky than Boliden AB. The pink sheet trades about -0.02 of its potential returns per unit of risk. The Boliden AB ADR is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  5,793  in Boliden AB ADR on September 14, 2024 and sell it today you would earn a total of  190.00  from holding Boliden AB ADR or generate 3.28% return on investment over 90 days.

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

Sumitomo Metal Mining  vs.  Boliden AB ADR

Sumitomo Metal Mining

Risk-Adjusted Performance

0 of 100

Very Weak

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

Boliden AB ADR

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Boliden AB ADR are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong basic indicators, Boliden AB is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Sumitomo Metal and Boliden AB

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

The idea behind Sumitomo Metal Mining and Boliden AB 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.

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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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.