Correlation Between Visa and Sumitomo Mitsui

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

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

Diversification Opportunities for Visa and Sumitomo Mitsui

0.95

Correlation Coefficient

Visa  Sumitomo Mitsui

Almost no diversification

The 3 months correlation between Visa and Sumitomo is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding Visa Inc 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 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 Inc 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 Visa i.e., Visa and Sumitomo Mitsui go up and down completely randomly.

Pair Corralation between Visa and Sumitomo Mitsui

Assuming the 90 days trading horizon Visa Inc is expected to generate 0.75 times more return on investment than Sumitomo Mitsui. However, Visa Inc is 1.34 times less risky than Sumitomo Mitsui. It trades about 0.32 of its potential returns per unit of risk. Sumitomo Mitsui Financial is currently generating about 0.23 per unit of risk. If you would invest  7,440  in Visa Inc on September 24, 2024 and sell it today you would earn a total of  2,622  from holding Visa Inc or generate 35.24% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	95.24%
Values	Daily Returns

Visa Inc  vs.  Sumitomo Mitsui Financial

Visa Inc

Risk-Adjusted Performance

25 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Visa Inc are ranked lower than 25 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Visa sustained solid returns over the last few months and may actually be approaching a breakup point.

Sumitomo Mitsui Financial

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Sumitomo Mitsui Financial are ranked lower than 18 (%) 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 Visa and Sumitomo Mitsui

The main advantage of trading using opposite Visa and Sumitomo Mitsui positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Visa 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 Visa Inc 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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.