Correlation Between Sumitomo Electric and Toray Industries

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

Diversification Opportunities for Sumitomo Electric and Toray Industries

0.69

Correlation Coefficient

Sumitomo Electric  Toray Industries

Poor diversification

The 3 months correlation between Sumitomo and Toray is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding Sumitomo Electric Industries and Toray Industries ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Toray Industries ADR 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 Toray Industries. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Toray Industries ADR has no effect on the direction of Sumitomo Electric i.e., Sumitomo Electric and Toray Industries go up and down completely randomly.

Pair Corralation between Sumitomo Electric and Toray Industries

Assuming the 90 days horizon Sumitomo Electric is expected to generate 1.29 times less return on investment than Toray Industries. In addition to that, Sumitomo Electric is 1.07 times more volatile than Toray Industries ADR. It trades about 0.07 of its total potential returns per unit of risk. Toray Industries ADR is currently generating about 0.09 per unit of volatility. If you would invest  1,016  in Toray Industries ADR on September 1, 2024 and sell it today you would earn a total of  255.00  from holding Toray Industries ADR or generate 25.1% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	99.21%
Values	Daily Returns

Sumitomo Electric Industries  vs.  Toray Industries ADR

Sumitomo Electric

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Sumitomo Electric Industries are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unfluctuating basic indicators, Sumitomo Electric showed solid returns over the last few months and may actually be approaching a breakup point.

Toray Industries ADR

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Toray Industries ADR are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of fairly inconsistent forward indicators, Toray Industries showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Sumitomo Electric and Toray Industries

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

The idea behind Sumitomo Electric Industries and Toray Industries ADR 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 Sync Your Broker module to sync your existing holdings, watchlists, positions or portfolios from thousands of online brokerage services, banks, investment account aggregators and robo-advisors..