Correlation Between Sumitomo Rubber and QBE Insurance

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

Diversification Opportunities for Sumitomo Rubber and QBE Insurance

0.83

Correlation Coefficient

Sumitomo Rubber  QBE Insurance

Very poor diversification

The 3 months correlation between Sumitomo and QBE is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Sumitomo Rubber Industries and QBE Insurance Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on QBE Insurance Group 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 QBE Insurance. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of QBE Insurance Group has no effect on the direction of Sumitomo Rubber i.e., Sumitomo Rubber and QBE Insurance go up and down completely randomly.

Pair Corralation between Sumitomo Rubber and QBE Insurance

Assuming the 90 days horizon Sumitomo Rubber is expected to generate 1.52 times less return on investment than QBE Insurance. In addition to that, Sumitomo Rubber is 1.69 times more volatile than QBE Insurance Group. It trades about 0.1 of its total potential returns per unit of risk. QBE Insurance Group is currently generating about 0.27 per unit of volatility. If you would invest  970.00  in QBE Insurance Group on September 1, 2024 and sell it today you would earn a total of  250.00  from holding QBE Insurance Group or generate 25.77% return on investment over 90 days.

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

Sumitomo Rubber Industries  vs.  QBE Insurance Group

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 unsteady basic indicators, Sumitomo Rubber reported solid returns over the last few months and may actually be approaching a breakup point.

QBE Insurance Group

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in QBE Insurance Group are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, QBE Insurance reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Sumitomo Rubber and QBE Insurance

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

The idea behind Sumitomo Rubber Industries and QBE Insurance Group 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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.