Correlation Between TRAVEL + and SUMITOMO CORP

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

By analyzing existing cross correlation between TRAVEL LEISURE DL 01 and SUMITOMO P SP, you can compare the effects of market volatilities on TRAVEL + and SUMITOMO CORP 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 TRAVEL + with a short position of SUMITOMO CORP. Check out your portfolio center. Please also check ongoing floating volatility patterns of TRAVEL + and SUMITOMO CORP.

Diversification Opportunities for TRAVEL + and SUMITOMO CORP

0.21

Correlation Coefficient

TRAVEL +  SUMITOMO CORP

Modest diversification

The 3 months correlation between TRAVEL and SUMITOMO is 0.21. Overlapping area represents the amount of risk that can be diversified away by holding TRAVEL LEISURE DL 01 and SUMITOMO P SP in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SUMITOMO P SP and TRAVEL + 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 TRAVEL LEISURE DL 01 are associated (or correlated) with SUMITOMO CORP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SUMITOMO P SP has no effect on the direction of TRAVEL + i.e., TRAVEL + and SUMITOMO CORP go up and down completely randomly.

Pair Corralation between TRAVEL + and SUMITOMO CORP

Assuming the 90 days trading horizon TRAVEL LEISURE DL 01 is expected to generate 1.54 times more return on investment than SUMITOMO CORP. However, TRAVEL + is 1.54 times more volatile than SUMITOMO P SP. It trades about 0.26 of its potential returns per unit of risk. SUMITOMO P SP is currently generating about 0.05 per unit of risk. If you would invest  3,737  in TRAVEL LEISURE DL 01 on April 24, 2025 and sell it today you would earn a total of  1,163  from holding TRAVEL LEISURE DL 01 or generate 31.12% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

TRAVEL LEISURE DL 01  vs.  SUMITOMO P SP

TRAVEL LEISURE DL

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in TRAVEL LEISURE DL 01 are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, TRAVEL + reported solid returns over the last few months and may actually be approaching a breakup point.

SUMITOMO P SP

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in SUMITOMO P SP are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable primary indicators, SUMITOMO CORP is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with TRAVEL + and SUMITOMO CORP

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

The idea behind TRAVEL LEISURE DL 01 and SUMITOMO P SP 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.