Correlation Between Sumitomo Rubber and FAST RETAIL

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

Diversification Opportunities for Sumitomo Rubber and FAST RETAIL

0.26
  Correlation Coefficient

Modest diversification

The 3 months correlation between Sumitomo and FAST is 0.26. Overlapping area represents the amount of risk that can be diversified away by holding Sumitomo Rubber Industries and FAST RETAIL ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FAST RETAIL ADR 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 FAST RETAIL. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of FAST RETAIL ADR has no effect on the direction of Sumitomo Rubber i.e., Sumitomo Rubber and FAST RETAIL go up and down completely randomly.

Pair Corralation between Sumitomo Rubber and FAST RETAIL

Assuming the 90 days horizon Sumitomo Rubber Industries is expected to generate 0.54 times more return on investment than FAST RETAIL. However, Sumitomo Rubber Industries is 1.85 times less risky than FAST RETAIL. It trades about 0.1 of its potential returns per unit of risk. FAST RETAIL ADR is currently generating about -0.24 per unit of risk. If you would invest  1,060  in Sumitomo Rubber Industries on October 25, 2024 and sell it today you would earn a total of  20.00  from holding Sumitomo Rubber Industries or generate 1.89% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Weak
Accuracy100.0%
ValuesDaily Returns

Sumitomo Rubber Industries  vs.  FAST RETAIL ADR

 Performance 
       Timeline  
Sumitomo Rubber Indu 

Risk-Adjusted Performance

16 of 100

 
Weak
 
Strong
Solid
Compared to the overall equity markets, risk-adjusted returns on investments in Sumitomo Rubber Industries are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, Sumitomo Rubber reported solid returns over the last few months and may actually be approaching a breakup point.
FAST RETAIL ADR 

Risk-Adjusted Performance

1 of 100

 
Weak
 
Strong
Very Weak
Compared to the overall equity markets, risk-adjusted returns on investments in FAST RETAIL ADR are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, FAST RETAIL is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Sumitomo Rubber and FAST RETAIL Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Sumitomo Rubber and FAST RETAIL

The main advantage of trading using opposite Sumitomo Rubber and FAST RETAIL positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Sumitomo Rubber position performs unexpectedly, FAST RETAIL 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 FAST RETAIL will offset losses from the drop in FAST RETAIL's long position.
The idea behind Sumitomo Rubber Industries and FAST RETAIL ADR 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.
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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.

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