Correlation Between Sumitomo Electric and Dorman Products

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

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

Diversification Opportunities for Sumitomo Electric and Dorman Products

0.86

Correlation Coefficient

Sumitomo Electric  Dorman Products

Very poor diversification

The 3 months correlation between Sumitomo and Dorman is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Sumitomo Electric Industries and Dorman Products in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dorman Products and Sumitomo Electric 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 Electric Industries are associated (or correlated) with Dorman Products. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dorman Products has no effect on the direction of Sumitomo Electric i.e., Sumitomo Electric and Dorman Products go up and down completely randomly.

Pair Corralation between Sumitomo Electric and Dorman Products

Assuming the 90 days horizon Sumitomo Electric Industries is expected to generate 1.9 times more return on investment than Dorman Products. However, Sumitomo Electric is 1.9 times more volatile than Dorman Products. It trades about 0.07 of its potential returns per unit of risk. Dorman Products is currently generating about 0.1 per unit of risk. 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 Together
Strength	Strong
Accuracy	100.0%
Values	Daily Returns

Sumitomo Electric Industries  vs.  Dorman Products

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.

Dorman Products

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Dorman Products are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of very fragile basic indicators, Dorman Products displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Sumitomo Electric and Dorman Products

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

The idea behind Sumitomo Electric Industries and Dorman Products 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 Top Crypto Exchanges module to search and analyze digital assets across top global cryptocurrency exchanges.