Correlation Between CARSALES and Sumitomo Rubber

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

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

Diversification Opportunities for CARSALES and Sumitomo Rubber

-0.66

Correlation Coefficient

CARSALES  Sumitomo Rubber

Excellent diversification

The 3 months correlation between CARSALES and Sumitomo is -0.66. Overlapping area represents the amount of risk that can be diversified away by holding CARSALESCOM 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 CARSALES 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 CARSALESCOM 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 CARSALES i.e., CARSALES and Sumitomo Rubber go up and down completely randomly.

Pair Corralation between CARSALES and Sumitomo Rubber

Assuming the 90 days trading horizon CARSALESCOM is expected to under-perform the Sumitomo Rubber. In addition to that, CARSALES is 1.16 times more volatile than Sumitomo Rubber Industries. It trades about -0.1 of its total potential returns per unit of risk. Sumitomo Rubber Industries is currently generating about 0.15 per unit of volatility. If you would invest  1,060  in Sumitomo Rubber Industries on December 24, 2024 and sell it today you would earn a total of  150.00  from holding Sumitomo Rubber Industries or generate 14.15% return on investment over 90 days.

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

CARSALESCOM  vs.  Sumitomo Rubber Industries

CARSALESCOM

Risk-Adjusted Performance

Very Weak

Over the last 90 days CARSALESCOM has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's basic indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Sumitomo Rubber Indu

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Sumitomo Rubber Industries are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, Sumitomo Rubber reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with CARSALES and Sumitomo Rubber

The main advantage of trading using opposite CARSALES and Sumitomo Rubber positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if CARSALES 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 CARSALESCOM 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.