Correlation Between Sumitomo Rubber and Mitsubishi Materials

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

Diversification Opportunities for Sumitomo Rubber and Mitsubishi Materials

-0.32

Correlation Coefficient

Sumitomo Rubber  Mitsubishi Materials

Very good diversification

The 3 months correlation between Sumitomo and Mitsubishi is -0.32. Overlapping area represents the amount of risk that can be diversified away by holding Sumitomo Rubber Industries and Mitsubishi Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mitsubishi Materials 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 Mitsubishi Materials. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Mitsubishi Materials has no effect on the direction of Sumitomo Rubber i.e., Sumitomo Rubber and Mitsubishi Materials go up and down completely randomly.

Pair Corralation between Sumitomo Rubber and Mitsubishi Materials

Assuming the 90 days horizon Sumitomo Rubber Industries is expected to generate 1.68 times more return on investment than Mitsubishi Materials. However, Sumitomo Rubber is 1.68 times more volatile than Mitsubishi Materials. It trades about 0.12 of its potential returns per unit of risk. Mitsubishi Materials is currently generating about -0.06 per unit of risk. If you would invest  880.00  in Sumitomo Rubber Industries on August 31, 2024 and sell it today you would earn a total of  150.00  from holding Sumitomo Rubber Industries or generate 17.05% return on investment over 90 days.

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

Sumitomo Rubber Industries  vs.  Mitsubishi Materials

Sumitomo Rubber Indu

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Sumitomo Rubber Industries are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Sumitomo Rubber reported solid returns over the last few months and may actually be approaching a breakup point.

Mitsubishi Materials

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Mitsubishi Materials has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound forward-looking indicators, Mitsubishi Materials is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Sumitomo Rubber and Mitsubishi Materials

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

The idea behind Sumitomo Rubber Industries and Mitsubishi Materials 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.