Correlation Between ITOCHU and Sumitomo
Can any of the company-specific risk be diversified away by investing in both ITOCHU 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 ITOCHU and Sumitomo into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between ITOCHU and Sumitomo, you can compare the effects of market volatilities on ITOCHU 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 ITOCHU with a short position of Sumitomo. Check out your portfolio center. Please also check ongoing floating volatility patterns of ITOCHU and Sumitomo.
Diversification Opportunities for ITOCHU and Sumitomo
Poor diversification
The 3 months correlation between ITOCHU and Sumitomo is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding ITOCHU and Sumitomo in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sumitomo and ITOCHU 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 ITOCHU 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 has no effect on the direction of ITOCHU i.e., ITOCHU and Sumitomo go up and down completely randomly.
Pair Corralation between ITOCHU and Sumitomo
Assuming the 90 days horizon ITOCHU is expected to generate 0.76 times more return on investment than Sumitomo. However, ITOCHU is 1.32 times less risky than Sumitomo. It trades about 0.06 of its potential returns per unit of risk. Sumitomo is currently generating about 0.03 per unit of risk. If you would invest 2,909 in ITOCHU on September 20, 2024 and sell it today you would earn a total of 1,821 from holding ITOCHU or generate 62.6% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
ITOCHU vs. Sumitomo
Performance |
| Timeline |
| ITOCHU |
| Sumitomo |
ITOCHU and Sumitomo Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with ITOCHU and Sumitomo
The main advantage of trading using opposite ITOCHU and Sumitomo positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if ITOCHU 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.| ITOCHU vs. Marubeni | ITOCHU vs. Sumitomo | ITOCHU vs. Superior Plus Corp | ITOCHU vs. SIVERS SEMICONDUCTORS AB |
| Sumitomo vs. ITOCHU | Sumitomo vs. Marubeni | Sumitomo vs. Superior Plus Corp | Sumitomo vs. SIVERS SEMICONDUCTORS AB |
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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.
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