Correlation Between Sumitomo Rubber and Li Ning

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

Diversification Opportunities for Sumitomo Rubber and Li Ning

0.39

Correlation Coefficient

Sumitomo Rubber  Li Ning

Weak diversification

The 3 months correlation between Sumitomo and LNLB is 0.39. Overlapping area represents the amount of risk that can be diversified away by holding Sumitomo Rubber Industries and Li Ning Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Li Ning Company 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 Li Ning. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Li Ning Company has no effect on the direction of Sumitomo Rubber i.e., Sumitomo Rubber and Li Ning go up and down completely randomly.

Pair Corralation between Sumitomo Rubber and Li Ning

Assuming the 90 days horizon Sumitomo Rubber Industries is expected to generate 1.51 times more return on investment than Li Ning. However, Sumitomo Rubber is 1.51 times more volatile than Li Ning Company. It trades about 0.06 of its potential returns per unit of risk. Li Ning Company is currently generating about -0.03 per unit of risk. If you would invest  352.00  in Sumitomo Rubber Industries on October 24, 2024 and sell it today you would earn a total of  728.00  from holding Sumitomo Rubber Industries or generate 206.82% return on investment over 90 days.

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

Sumitomo Rubber Industries  vs.  Li Ning Company

Sumitomo Rubber Indu

Risk-Adjusted Performance

16 of 100

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.

Li Ning Company

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Li Ning Company are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile essential indicators, Li Ning may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Sumitomo Rubber and Li Ning

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

The idea behind Sumitomo Rubber Industries and Li Ning Company 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.