Correlation Between Essentra Plc and Sumitomo Rubber

Can any of the company-specific risk be diversified away by investing in both Essentra Plc and Sumitomo Rubber 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 Essentra Plc and Sumitomo Rubber into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Essentra plc and Sumitomo Rubber Industries, you can compare the effects of market volatilities on Essentra Plc and Sumitomo Rubber 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 Essentra Plc with a short position of Sumitomo Rubber. Check out your portfolio center. Please also check ongoing floating volatility patterns of Essentra Plc and Sumitomo Rubber.

Diversification Opportunities for Essentra Plc and Sumitomo Rubber

-0.29

Correlation Coefficient

Essentra Plc  Sumitomo Rubber

Very good diversification

The 3 months correlation between Essentra and Sumitomo is -0.29. Overlapping area represents the amount of risk that can be diversified away by holding Essentra plc and Sumitomo Rubber Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sumitomo Rubber Indu and Essentra Plc 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 Essentra plc are associated (or correlated) with Sumitomo Rubber. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sumitomo Rubber Indu has no effect on the direction of Essentra Plc i.e., Essentra Plc and Sumitomo Rubber go up and down completely randomly.

Pair Corralation between Essentra Plc and Sumitomo Rubber

Assuming the 90 days horizon Essentra plc is expected to under-perform the Sumitomo Rubber. But the stock apears to be less risky and, when comparing its historical volatility, Essentra plc is 1.37 times less risky than Sumitomo Rubber. The stock trades about -0.13 of its potential returns per unit of risk. The Sumitomo Rubber Industries is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  965.00  in Sumitomo Rubber Industries on September 26, 2024 and sell it today you would earn a total of  105.00  from holding Sumitomo Rubber Industries or generate 10.88% return on investment over 90 days.

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

Essentra plc  vs.  Sumitomo Rubber Industries

Essentra plc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Essentra plc has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Sumitomo Rubber Indu

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Sumitomo Rubber Industries are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Sumitomo Rubber may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Essentra Plc and Sumitomo Rubber

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

The idea behind Essentra plc and Sumitomo Rubber 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.