Correlation Between Sumitomo Rubber and CARSALES

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

Diversification Opportunities for Sumitomo Rubber and CARSALES

-0.66

Correlation Coefficient

Sumitomo Rubber  CARSALES

Excellent diversification

The 3 months correlation between Sumitomo and CARSALES is -0.66. Overlapping area represents the amount of risk that can be diversified away by holding Sumitomo Rubber Industries and CARSALESCOM in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CARSALESCOM 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 CARSALES. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CARSALESCOM has no effect on the direction of Sumitomo Rubber i.e., Sumitomo Rubber and CARSALES go up and down completely randomly.

Pair Corralation between Sumitomo Rubber and CARSALES

Assuming the 90 days horizon Sumitomo Rubber Industries is expected to generate 0.86 times more return on investment than CARSALES. However, Sumitomo Rubber Industries is 1.16 times less risky than CARSALES. It trades about 0.15 of its potential returns per unit of risk. CARSALESCOM is currently generating about -0.1 per unit of risk. If you would invest  1,060  in Sumitomo Rubber Industries on December 24, 2024 and sell it today you would earn a total of  150.00  from holding Sumitomo Rubber Industries or generate 14.15% return on investment over 90 days.

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

Sumitomo Rubber Industries  vs.  CARSALESCOM

Sumitomo Rubber Indu

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Sumitomo Rubber Industries are ranked lower than 11 (%) 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.

CARSALESCOM

Risk-Adjusted Performance

Very Weak

Over the last 90 days CARSALESCOM has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's basic indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Pair Trading with Sumitomo Rubber and CARSALES

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

The idea behind Sumitomo Rubber Industries and CARSALESCOM 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.