Correlation Between Sumitomo Rubber and RENTOKIL INITIAL

Can any of the company-specific risk be diversified away by investing in both Sumitomo Rubber and RENTOKIL INITIAL 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 RENTOKIL INITIAL 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 RENTOKIL INITIAL ADR5, you can compare the effects of market volatilities on Sumitomo Rubber and RENTOKIL INITIAL 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 RENTOKIL INITIAL. Check out your portfolio center. Please also check ongoing floating volatility patterns of Sumitomo Rubber and RENTOKIL INITIAL.

Diversification Opportunities for Sumitomo Rubber and RENTOKIL INITIAL

0.42

Correlation Coefficient

Sumitomo Rubber  RENTOKIL INITIAL

Very weak diversification

The 3 months correlation between Sumitomo and RENTOKIL is 0.42. Overlapping area represents the amount of risk that can be diversified away by holding Sumitomo Rubber Industries and RENTOKIL INITIAL ADR5 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on RENTOKIL INITIAL ADR5 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 RENTOKIL INITIAL. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of RENTOKIL INITIAL ADR5 has no effect on the direction of Sumitomo Rubber i.e., Sumitomo Rubber and RENTOKIL INITIAL go up and down completely randomly.

Pair Corralation between Sumitomo Rubber and RENTOKIL INITIAL

Assuming the 90 days horizon Sumitomo Rubber Industries is expected to generate 0.43 times more return on investment than RENTOKIL INITIAL. However, Sumitomo Rubber Industries is 2.33 times less risky than RENTOKIL INITIAL. It trades about 0.01 of its potential returns per unit of risk. RENTOKIL INITIAL ADR5 is currently generating about -0.08 per unit of risk. If you would invest  1,070  in Sumitomo Rubber Industries on October 22, 2024 and sell it today you would earn a total of  0.00  from holding Sumitomo Rubber Industries or generate 0.0% return on investment over 90 days.

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

Sumitomo Rubber Industries  vs.  RENTOKIL INITIAL ADR5

Sumitomo Rubber Indu

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Sumitomo Rubber Industries are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Sumitomo Rubber reported solid returns over the last few months and may actually be approaching a breakup point.

RENTOKIL INITIAL ADR5

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in RENTOKIL INITIAL ADR5 are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, RENTOKIL INITIAL is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Sumitomo Rubber and RENTOKIL INITIAL

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

The idea behind Sumitomo Rubber Industries and RENTOKIL INITIAL ADR5 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 Global Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.