Correlation Between Bridgestone Corp and Sumitomo Electric

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

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

Diversification Opportunities for Bridgestone Corp and Sumitomo Electric

-0.64

Correlation Coefficient

Bridgestone Corp  Sumitomo Electric

Excellent diversification

The 3 months correlation between Bridgestone and Sumitomo is -0.64. Overlapping area represents the amount of risk that can be diversified away by holding Bridgestone Corp ADR and Sumitomo Electric Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sumitomo Electric and Bridgestone Corp 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 Bridgestone Corp ADR are associated (or correlated) with Sumitomo Electric. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sumitomo Electric has no effect on the direction of Bridgestone Corp i.e., Bridgestone Corp and Sumitomo Electric go up and down completely randomly.

Pair Corralation between Bridgestone Corp and Sumitomo Electric

Assuming the 90 days horizon Bridgestone Corp ADR is expected to under-perform the Sumitomo Electric. But the pink sheet apears to be less risky and, when comparing its historical volatility, Bridgestone Corp ADR is 2.69 times less risky than Sumitomo Electric. The pink sheet trades about -0.07 of its potential returns per unit of risk. The Sumitomo Electric Industries is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  1,822  in Sumitomo Electric Industries on September 17, 2024 and sell it today you would earn a total of  52.00  from holding Sumitomo Electric Industries or generate 2.85% return on investment over 90 days.

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

Bridgestone Corp ADR  vs.  Sumitomo Electric Industries

Bridgestone Corp ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Bridgestone Corp ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's fundamental indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Sumitomo Electric

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Sumitomo Electric Industries are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of fairly conflicting basic indicators, Sumitomo Electric showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Bridgestone Corp and Sumitomo Electric

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

The idea behind Bridgestone Corp ADR and Sumitomo Electric 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.