Correlation Between Sumitomo and ITOCHU
Can any of the company-specific risk be diversified away by investing in both Sumitomo and ITOCHU 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 and ITOCHU into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Sumitomo and ITOCHU, you can compare the effects of market volatilities on Sumitomo and ITOCHU 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 with a short position of ITOCHU. Check out your portfolio center. Please also check ongoing floating volatility patterns of Sumitomo and ITOCHU.
Diversification Opportunities for Sumitomo and ITOCHU
Very weak diversification
The 3 months correlation between Sumitomo and ITOCHU is 0.44. Overlapping area represents the amount of risk that can be diversified away by holding Sumitomo and ITOCHU in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ITOCHU and Sumitomo 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 are associated (or correlated) with ITOCHU. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ITOCHU has no effect on the direction of Sumitomo i.e., Sumitomo and ITOCHU go up and down completely randomly.
Pair Corralation between Sumitomo and ITOCHU
Assuming the 90 days horizon Sumitomo is expected to generate 3.18 times less return on investment than ITOCHU. But when comparing it to its historical volatility, Sumitomo is 1.24 times less risky than ITOCHU. It trades about 0.02 of its potential returns per unit of risk. ITOCHU is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest 3,572 in ITOCHU on September 3, 2024 and sell it today you would earn a total of 1,553 from holding ITOCHU or generate 43.48% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 89.51% |
| Values | Daily Returns |
Sumitomo vs. ITOCHU
Performance |
| Timeline |
| Sumitomo |
| ITOCHU |
Sumitomo and ITOCHU Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Sumitomo and ITOCHU
The main advantage of trading using opposite Sumitomo and ITOCHU positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Sumitomo position performs unexpectedly, ITOCHU 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 ITOCHU will offset losses from the drop in ITOCHU's long position.The idea behind Sumitomo and ITOCHU 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.| ITOCHU vs. Sumitomo Corp ADR | ITOCHU vs. Mitsui Co | ITOCHU vs. Marubeni Corp ADR | ITOCHU vs. Mitsubishi Corp |
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 Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.
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