Correlation Between Kawasaki Heavy and Sumitomo Corp

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

Diversification Opportunities for Kawasaki Heavy and Sumitomo Corp

0.14
  Correlation Coefficient

Average diversification

The 3 months correlation between Kawasaki and Sumitomo is 0.14. Overlapping area represents the amount of risk that can be diversified away by holding Kawasaki Heavy Industries and Sumitomo Corp ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sumitomo Corp ADR and Kawasaki Heavy 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 Kawasaki Heavy Industries are associated (or correlated) with Sumitomo Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sumitomo Corp ADR has no effect on the direction of Kawasaki Heavy i.e., Kawasaki Heavy and Sumitomo Corp go up and down completely randomly.

Pair Corralation between Kawasaki Heavy and Sumitomo Corp

Assuming the 90 days horizon Kawasaki Heavy Industries is expected to generate 2.09 times more return on investment than Sumitomo Corp. However, Kawasaki Heavy is 2.09 times more volatile than Sumitomo Corp ADR. It trades about 0.08 of its potential returns per unit of risk. Sumitomo Corp ADR is currently generating about -0.03 per unit of risk. If you would invest  1,111  in Kawasaki Heavy Industries on October 22, 2024 and sell it today you would earn a total of  659.00  from holding Kawasaki Heavy Industries or generate 59.32% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthInsignificant
Accuracy100.0%
ValuesDaily Returns

Kawasaki Heavy Industries  vs.  Sumitomo Corp ADR

 Performance 
       Timeline  
Kawasaki Heavy Industries 

Risk-Adjusted Performance

5 of 100

 
Weak
 
Strong
Modest
Compared to the overall equity markets, risk-adjusted returns on investments in Kawasaki Heavy Industries are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of fairly fragile forward indicators, Kawasaki Heavy showed solid returns over the last few months and may actually be approaching a breakup point.
Sumitomo Corp ADR 

Risk-Adjusted Performance

0 of 100

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

Kawasaki Heavy and Sumitomo Corp Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Kawasaki Heavy and Sumitomo Corp

The main advantage of trading using opposite Kawasaki Heavy and Sumitomo Corp positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Kawasaki Heavy position performs unexpectedly, Sumitomo Corp 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 Corp will offset losses from the drop in Sumitomo Corp's long position.
The idea behind Kawasaki Heavy Industries and Sumitomo Corp ADR 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.

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