Correlation Between Denso Corp and Sumitomo Electric

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Can any of the company-specific risk be diversified away by investing in both Denso Corp and Sumitomo Electric 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 Denso Corp and Sumitomo Electric into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Denso Corp ADR and Sumitomo Electric Industries, you can compare the effects of market volatilities on Denso Corp and Sumitomo Electric 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 Denso Corp with a short position of Sumitomo Electric. Check out your portfolio center. Please also check ongoing floating volatility patterns of Denso Corp and Sumitomo Electric.

Diversification Opportunities for Denso Corp and Sumitomo Electric

-0.39
  Correlation Coefficient

Very good diversification

The 3 months correlation between Denso and Sumitomo is -0.39. Overlapping area represents the amount of risk that can be diversified away by holding Denso Corp ADR and Sumitomo Electric Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sumitomo Electric and Denso Corp 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 Denso Corp ADR are associated (or correlated) with Sumitomo Electric. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sumitomo Electric has no effect on the direction of Denso Corp i.e., Denso Corp and Sumitomo Electric go up and down completely randomly.

Pair Corralation between Denso Corp and Sumitomo Electric

Assuming the 90 days horizon Denso Corp ADR is expected to generate 4.4 times more return on investment than Sumitomo Electric. However, Denso Corp is 4.4 times more volatile than Sumitomo Electric Industries. It trades about 0.03 of its potential returns per unit of risk. Sumitomo Electric Industries is currently generating about 0.09 per unit of risk. If you would invest  1,283  in Denso Corp ADR on August 26, 2024 and sell it today you would earn a total of  192.00  from holding Denso Corp ADR or generate 14.96% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthInsignificant
Accuracy100.0%
ValuesDaily Returns

Denso Corp ADR  vs.  Sumitomo Electric Industries

 Performance 
       Timeline  
Denso Corp ADR 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days Denso Corp ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, Denso Corp is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.
Sumitomo Electric 

Risk-Adjusted Performance

9 of 100

 
Weak
 
Strong
OK
Compared to the overall equity markets, risk-adjusted returns on investments in Sumitomo Electric Industries are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Sumitomo Electric is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Denso Corp and Sumitomo Electric Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Denso Corp and Sumitomo Electric

The main advantage of trading using opposite Denso Corp and Sumitomo Electric positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Denso Corp position performs unexpectedly, Sumitomo Electric 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 Sumitomo Electric will offset losses from the drop in Sumitomo Electric's long position.
The idea behind Denso Corp ADR and Sumitomo Electric Industries 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.

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