Correlation Between Sumitomo Rubber and Zeon

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

Diversification Opportunities for Sumitomo Rubber and Zeon

0.6

Correlation Coefficient

Sumitomo Rubber  Zeon

Poor diversification

The 3 months correlation between Sumitomo and Zeon is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Sumitomo Rubber Industries and Zeon Corp. in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Zeon 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 Zeon. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Zeon has no effect on the direction of Sumitomo Rubber i.e., Sumitomo Rubber and Zeon go up and down completely randomly.

Pair Corralation between Sumitomo Rubber and Zeon

Assuming the 90 days horizon Sumitomo Rubber Industries is expected to generate 1.5 times more return on investment than Zeon. However, Sumitomo Rubber is 1.5 times more volatile than Zeon Corporation. It trades about 0.31 of its potential returns per unit of risk. Zeon Corporation is currently generating about 0.1 per unit of risk. If you would invest  890.00  in Sumitomo Rubber Industries on September 4, 2024 and sell it today you would earn a total of  120.00  from holding Sumitomo Rubber Industries or generate 13.48% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	95.45%
Values	Daily Returns

Sumitomo Rubber Industries  vs.  Zeon Corp.

Sumitomo Rubber Indu

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Sumitomo Rubber Industries are ranked lower than 8 (%) 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.

Zeon

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Zeon Corporation are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Zeon reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Sumitomo Rubber and Zeon

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

The idea behind Sumitomo Rubber Industries and Zeon Corporation 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.

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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.