Correlation Between National Beverage and Sumitomo Rubber

Can any of the company-specific risk be diversified away by investing in both National Beverage and Sumitomo Rubber 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 National Beverage and Sumitomo Rubber into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between National Beverage Corp and Sumitomo Rubber Industries, you can compare the effects of market volatilities on National Beverage and Sumitomo Rubber 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 National Beverage with a short position of Sumitomo Rubber. Check out your portfolio center. Please also check ongoing floating volatility patterns of National Beverage and Sumitomo Rubber.

Diversification Opportunities for National Beverage and Sumitomo Rubber

0.79

Correlation Coefficient

National Beverage  Sumitomo Rubber

Poor diversification

The 3 months correlation between National and Sumitomo is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding National Beverage Corp and Sumitomo Rubber Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sumitomo Rubber Indu and National Beverage 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 National Beverage Corp are associated (or correlated) with Sumitomo Rubber. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sumitomo Rubber Indu has no effect on the direction of National Beverage i.e., National Beverage and Sumitomo Rubber go up and down completely randomly.

Pair Corralation between National Beverage and Sumitomo Rubber

Assuming the 90 days horizon National Beverage is expected to generate 1.59 times less return on investment than Sumitomo Rubber. But when comparing it to its historical volatility, National Beverage Corp is 1.38 times less risky than Sumitomo Rubber. It trades about 0.11 of its potential returns per unit of risk. Sumitomo Rubber Industries is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  910.00  in Sumitomo Rubber Industries on September 15, 2024 and sell it today you would earn a total of  170.00  from holding Sumitomo Rubber Industries or generate 18.68% return on investment over 90 days.

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

National Beverage Corp  vs.  Sumitomo Rubber Industries

National Beverage Corp

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in National Beverage Corp are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, National Beverage may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Sumitomo Rubber Indu

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Sumitomo Rubber Industries are ranked lower than 10 (%) 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.

Pair Trading with National Beverage and Sumitomo Rubber

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

The idea behind National Beverage Corp and Sumitomo Rubber Industries 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.