Correlation Between Sumitomo Rubber and Salesforce

Can any of the company-specific risk be diversified away by investing in both Sumitomo Rubber and Salesforce 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 Salesforce 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 Salesforce, you can compare the effects of market volatilities on Sumitomo Rubber and Salesforce 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 Salesforce. Check out your portfolio center. Please also check ongoing floating volatility patterns of Sumitomo Rubber and Salesforce.

Diversification Opportunities for Sumitomo Rubber and Salesforce

0.83

Correlation Coefficient

Sumitomo Rubber  Salesforce

Very poor diversification

The 3 months correlation between Sumitomo and Salesforce is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Sumitomo Rubber Industries and Salesforce in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Salesforce 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 Salesforce. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Salesforce has no effect on the direction of Sumitomo Rubber i.e., Sumitomo Rubber and Salesforce go up and down completely randomly.

Pair Corralation between Sumitomo Rubber and Salesforce

Assuming the 90 days horizon Sumitomo Rubber Industries is expected to generate 1.0 times more return on investment than Salesforce. However, Sumitomo Rubber is 1.0 times more volatile than Salesforce. It trades about 0.22 of its potential returns per unit of risk. Salesforce is currently generating about -0.24 per unit of risk. If you would invest  1,020  in Sumitomo Rubber Industries on October 5, 2024 and sell it today you would earn a total of  50.00  from holding Sumitomo Rubber Industries or generate 4.9% return on investment over 90 days.

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

Sumitomo Rubber Industries  vs.  Salesforce

Sumitomo Rubber Indu

Risk-Adjusted Performance

0 of 100

Good

Over the last 90 days Sumitomo Rubber Industries has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly uncertain basic indicators, Sumitomo Rubber reported solid returns over the last few months and may actually be approaching a breakup point.

Salesforce

Risk-Adjusted Performance

0 of 100

Good

Over the last 90 days Salesforce has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively uncertain basic indicators, Salesforce unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Sumitomo Rubber and Salesforce

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

The idea behind Sumitomo Rubber Industries and Salesforce 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.