Correlation Between Sumitomo Mitsui and Smith Nephew

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

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

Diversification Opportunities for Sumitomo Mitsui and Smith Nephew

-0.5

Correlation Coefficient

Sumitomo Mitsui  Smith Nephew

Very good diversification

The 3 months correlation between Sumitomo and Smith is -0.5. Overlapping area represents the amount of risk that can be diversified away by holding Sumitomo Mitsui Financial and Smith Nephew plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Smith Nephew plc and Sumitomo Mitsui 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 Mitsui Financial are associated (or correlated) with Smith Nephew. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Smith Nephew plc has no effect on the direction of Sumitomo Mitsui i.e., Sumitomo Mitsui and Smith Nephew go up and down completely randomly.

Pair Corralation between Sumitomo Mitsui and Smith Nephew

Given the investment horizon of 90 days Sumitomo Mitsui Financial is expected to generate 0.55 times more return on investment than Smith Nephew. However, Sumitomo Mitsui Financial is 1.8 times less risky than Smith Nephew. It trades about 0.09 of its potential returns per unit of risk. Smith Nephew plc is currently generating about 0.01 per unit of risk. If you would invest  547.00  in Sumitomo Mitsui Financial on February 1, 2024 and sell it today you would earn a total of  589.00  from holding Sumitomo Mitsui Financial or generate 107.68% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	86.46%
Values	Daily Returns

Sumitomo Mitsui Financial  vs.  Smith Nephew plc

Sumitomo Mitsui Financial

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Sumitomo Mitsui Financial are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak technical and fundamental indicators, Sumitomo Mitsui may actually be approaching a critical reversion point that can send shares even higher in June 2024.

Smith Nephew plc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Smith Nephew plc has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unfluctuating performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Sumitomo Mitsui and Smith Nephew

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

The idea behind Sumitomo Mitsui Financial and Smith Nephew plc 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 File Import module to quickly import all of your third-party portfolios from your local drive in csv format.