Correlation Between Visa and SUMITOMO

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

By analyzing existing cross correlation between Visa Class A and SUMITOMO MITSUI FINL, you can compare the effects of market volatilities on Visa and SUMITOMO 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 Visa with a short position of SUMITOMO. Check out your portfolio center. Please also check ongoing floating volatility patterns of Visa and SUMITOMO.

Diversification Opportunities for Visa and SUMITOMO

-0.47

Correlation Coefficient

Visa  SUMITOMO

Very good diversification

The 3 months correlation between Visa and SUMITOMO is -0.47. Overlapping area represents the amount of risk that can be diversified away by holding Visa Class A and SUMITOMO MITSUI FINL in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SUMITOMO MITSUI FINL and Visa 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 Visa Class A are associated (or correlated) with SUMITOMO. 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 FINL has no effect on the direction of Visa i.e., Visa and SUMITOMO go up and down completely randomly.

Pair Corralation between Visa and SUMITOMO

Taking into account the 90-day investment horizon Visa Class A is expected to generate 3.48 times more return on investment than SUMITOMO. However, Visa is 3.48 times more volatile than SUMITOMO MITSUI FINL. It trades about 0.12 of its potential returns per unit of risk. SUMITOMO MITSUI FINL is currently generating about -0.12 per unit of risk. If you would invest  28,680  in Visa Class A on September 13, 2024 and sell it today you would earn a total of  2,743  from holding Visa Class A or generate 9.56% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	95.31%
Values	Daily Returns

Visa Class A  vs.  SUMITOMO MITSUI FINL

Visa Class A

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Visa Class A are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Visa may actually be approaching a critical reversion point that can send shares even higher in January 2025.

SUMITOMO MITSUI FINL

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days SUMITOMO MITSUI FINL has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, SUMITOMO is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Visa and SUMITOMO

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

The idea behind Visa Class A and SUMITOMO MITSUI FINL 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.