Correlation Between Ford and Sumitomo Electric

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

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

Diversification Opportunities for Ford and Sumitomo Electric

0.26

Correlation Coefficient

Ford  Sumitomo Electric

Modest diversification

The 3 months correlation between Ford and Sumitomo is 0.26. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and Sumitomo Electric Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sumitomo Electric and Ford 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 Ford Motor 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 Ford i.e., Ford and Sumitomo Electric go up and down completely randomly.

Pair Corralation between Ford and Sumitomo Electric

Taking into account the 90-day investment horizon Ford Motor is expected to under-perform the Sumitomo Electric. But the stock apears to be less risky and, when comparing its historical volatility, Ford Motor is 1.17 times less risky than Sumitomo Electric. The stock trades about -0.02 of its potential returns per unit of risk. The Sumitomo Electric Industries is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  1,592  in Sumitomo Electric Industries on September 17, 2024 and sell it today you would earn a total of  282.00  from holding Sumitomo Electric Industries or generate 17.71% return on investment over 90 days.

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

Ford Motor  vs.  Sumitomo Electric Industries

Ford Motor

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Ford Motor has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable technical and fundamental indicators, Ford is not utilizing all of its potentials. The recent stock price disturbance, may contribute to mid-run losses for the stockholders.

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 Ford and Sumitomo Electric

The main advantage of trading using opposite Ford and Sumitomo Electric positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ford 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 Ford Motor 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.