Correlation Between Sumitomo Rubber and Goodyear Tire
Can any of the company-specific risk be diversified away by investing in both Sumitomo Rubber and Goodyear Tire 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 Goodyear Tire 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 Goodyear Tire Rubber, you can compare the effects of market volatilities on Sumitomo Rubber and Goodyear Tire 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 Goodyear Tire. Check out your portfolio center. Please also check ongoing floating volatility patterns of Sumitomo Rubber and Goodyear Tire.
Diversification Opportunities for Sumitomo Rubber and Goodyear Tire
0.63 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Sumitomo and Goodyear is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Sumitomo Rubber Industries and Goodyear Tire Rubber in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Goodyear Tire Rubber 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 Goodyear Tire. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Goodyear Tire Rubber has no effect on the direction of Sumitomo Rubber i.e., Sumitomo Rubber and Goodyear Tire go up and down completely randomly.
Pair Corralation between Sumitomo Rubber and Goodyear Tire
Assuming the 90 days horizon Sumitomo Rubber is expected to generate 1.49 times less return on investment than Goodyear Tire. But when comparing it to its historical volatility, Sumitomo Rubber Industries is 1.76 times less risky than Goodyear Tire. It trades about 0.32 of its potential returns per unit of risk. Goodyear Tire Rubber is currently generating about 0.27 of returns per unit of risk over similar time horizon. If you would invest 788.00 in Goodyear Tire Rubber on August 29, 2024 and sell it today you would earn a total of 175.00 from holding Goodyear Tire Rubber or generate 22.21% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Sumitomo Rubber Industries vs. Goodyear Tire Rubber
Performance |
| Timeline |
| Sumitomo Rubber Indu |
| Goodyear Tire Rubber |
Sumitomo Rubber and Goodyear Tire Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Sumitomo Rubber and Goodyear Tire
The main advantage of trading using opposite Sumitomo Rubber and Goodyear Tire positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Sumitomo Rubber position performs unexpectedly, Goodyear Tire 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 Goodyear Tire will offset losses from the drop in Goodyear Tire's long position.| Sumitomo Rubber vs. Advanced Drainage Systems | Sumitomo Rubber vs. Zeon Corporation | Sumitomo Rubber vs. Polyplex Public |
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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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.
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