Correlation Between Sumitomo Rubber and LG Electronics
Can any of the company-specific risk be diversified away by investing in both Sumitomo Rubber and LG Electronics 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 Rubber and LG Electronics into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Sumitomo Rubber Industries and LG Electronics, you can compare the effects of market volatilities on Sumitomo Rubber and LG Electronics 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 Rubber with a short position of LG Electronics. Check out your portfolio center. Please also check ongoing floating volatility patterns of Sumitomo Rubber and LG Electronics.
Diversification Opportunities for Sumitomo Rubber and LG Electronics
-0.68 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between Sumitomo and LGLG is -0.68. Overlapping area represents the amount of risk that can be diversified away by holding Sumitomo Rubber Industries and LG Electronics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LG Electronics and Sumitomo Rubber 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 Rubber Industries are associated (or correlated) with LG Electronics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LG Electronics has no effect on the direction of Sumitomo Rubber i.e., Sumitomo Rubber and LG Electronics go up and down completely randomly.
Pair Corralation between Sumitomo Rubber and LG Electronics
Assuming the 90 days horizon Sumitomo Rubber Industries is expected to generate 1.04 times more return on investment than LG Electronics. However, Sumitomo Rubber is 1.04 times more volatile than LG Electronics. It trades about 0.08 of its potential returns per unit of risk. LG Electronics is currently generating about -0.12 per unit of risk. If you would invest 960.00 in Sumitomo Rubber Industries on September 23, 2024 and sell it today you would earn a total of 100.00 from holding Sumitomo Rubber Industries or generate 10.42% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Against |
Strength | Weak |
Accuracy | 100.0% |
Values | Daily Returns |
Sumitomo Rubber Industries vs. LG Electronics
Performance |
Timeline |
Sumitomo Rubber Indu |
LG Electronics |
Sumitomo Rubber and LG Electronics Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Sumitomo Rubber and LG Electronics
The main advantage of trading using opposite Sumitomo Rubber and LG Electronics positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Sumitomo Rubber position performs unexpectedly, LG Electronics 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 LG Electronics will offset losses from the drop in LG Electronics' long position.Sumitomo Rubber vs. Bridgestone | Sumitomo Rubber vs. Advanced Drainage Systems | Sumitomo Rubber vs. The Goodyear Tire | Sumitomo Rubber vs. Zeon Corporation |
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Check out your portfolio center.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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.
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