Correlation Between Sumitomo Rubber and Westinghouse Air

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

Diversification Opportunities for Sumitomo Rubber and Westinghouse Air

0.71

Correlation Coefficient

Sumitomo Rubber  Westinghouse Air

Poor diversification

The 3 months correlation between Sumitomo and Westinghouse is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Sumitomo Rubber Industries and Westinghouse Air Brake in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Westinghouse Air Brake 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 Westinghouse Air. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Westinghouse Air Brake has no effect on the direction of Sumitomo Rubber i.e., Sumitomo Rubber and Westinghouse Air go up and down completely randomly.

Pair Corralation between Sumitomo Rubber and Westinghouse Air

Assuming the 90 days horizon Sumitomo Rubber Industries is expected to generate 3.98 times more return on investment than Westinghouse Air. However, Sumitomo Rubber is 3.98 times more volatile than Westinghouse Air Brake. It trades about 0.05 of its potential returns per unit of risk. Westinghouse Air Brake is currently generating about 0.1 per unit of risk. If you would invest  365.00  in Sumitomo Rubber Industries on October 25, 2024 and sell it today you would earn a total of  715.00  from holding Sumitomo Rubber Industries or generate 195.89% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	99.8%
Values	Daily Returns

Sumitomo Rubber Industries  vs.  Westinghouse Air Brake

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 weak basic indicators, Sumitomo Rubber reported solid returns over the last few months and may actually be approaching a breakup point.

Westinghouse Air Brake

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Westinghouse Air Brake are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, Westinghouse Air reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Sumitomo Rubber and Westinghouse Air

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

The idea behind Sumitomo Rubber Industries and Westinghouse Air Brake 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.