Correlation Between Sumitomo Rubber and WPP PLC
Can any of the company-specific risk be diversified away by investing in both Sumitomo Rubber and WPP PLC 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 Rubber and WPP PLC into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Sumitomo Rubber Industries and WPP PLC, you can compare the effects of market volatilities on Sumitomo Rubber and WPP PLC 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 Rubber with a short position of WPP PLC. Check out your portfolio center. Please also check ongoing floating volatility patterns of Sumitomo Rubber and WPP PLC.
Diversification Opportunities for Sumitomo Rubber and WPP PLC
0.64 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Sumitomo and WPP is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Sumitomo Rubber Industries and WPP PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WPP PLC and Sumitomo Rubber 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 Rubber Industries are associated (or correlated) with WPP PLC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of WPP PLC has no effect on the direction of Sumitomo Rubber i.e., Sumitomo Rubber and WPP PLC go up and down completely randomly.
Pair Corralation between Sumitomo Rubber and WPP PLC
Assuming the 90 days horizon Sumitomo Rubber Industries is expected to generate 1.62 times more return on investment than WPP PLC. However, Sumitomo Rubber is 1.62 times more volatile than WPP PLC. It trades about 0.11 of its potential returns per unit of risk. WPP PLC is currently generating about -0.54 per unit of risk. If you would invest 1,050 in Sumitomo Rubber Industries on October 9, 2024 and sell it today you would earn a total of 30.00 from holding Sumitomo Rubber Industries or generate 2.86% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Significant |
Accuracy | 100.0% |
Values | Daily Returns |
Sumitomo Rubber Industries vs. WPP PLC
Performance |
Timeline |
Sumitomo Rubber Indu |
WPP PLC |
Sumitomo Rubber and WPP PLC Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Sumitomo Rubber and WPP PLC
The main advantage of trading using opposite Sumitomo Rubber and WPP PLC positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Sumitomo Rubber position performs unexpectedly, WPP PLC 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 WPP PLC will offset losses from the drop in WPP PLC's long position.Sumitomo Rubber vs. AGRICULTBK HADR25 YC | Sumitomo Rubber vs. HYDROFARM HLD GRP | Sumitomo Rubber vs. Seven West Media | Sumitomo Rubber vs. RYU Apparel |
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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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.
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