Correlation Between Aptiv PLC and Bridgestone Corp

Can any of the company-specific risk be diversified away by investing in both Aptiv PLC and Bridgestone 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 Aptiv PLC and Bridgestone Corp into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Aptiv PLC and Bridgestone Corp ADR, you can compare the effects of market volatilities on Aptiv PLC and Bridgestone 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 Aptiv PLC with a short position of Bridgestone Corp. Check out your portfolio center. Please also check ongoing floating volatility patterns of Aptiv PLC and Bridgestone Corp.

Diversification Opportunities for Aptiv PLC and Bridgestone Corp

0.6

Correlation Coefficient

Aptiv PLC  Bridgestone Corp

Poor diversification

The 3 months correlation between Aptiv and Bridgestone is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Aptiv PLC and Bridgestone Corp ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bridgestone Corp ADR and Aptiv 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 Aptiv PLC are associated (or correlated) with Bridgestone Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bridgestone Corp ADR has no effect on the direction of Aptiv PLC i.e., Aptiv PLC and Bridgestone Corp go up and down completely randomly.

Pair Corralation between Aptiv PLC and Bridgestone Corp

Given the investment horizon of 90 days Aptiv PLC is expected to under-perform the Bridgestone Corp. In addition to that, Aptiv PLC is 1.79 times more volatile than Bridgestone Corp ADR. It trades about -0.04 of its total potential returns per unit of risk. Bridgestone Corp ADR is currently generating about 0.02 per unit of volatility. If you would invest  1,809  in Bridgestone Corp ADR on December 4, 2024 and sell it today you would earn a total of  166.00  from holding Bridgestone Corp ADR or generate 9.18% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	99.6%
Values	Daily Returns

Aptiv PLC  vs.  Bridgestone Corp ADR

Aptiv PLC

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Aptiv PLC are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unfluctuating basic indicators, Aptiv PLC may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Bridgestone Corp ADR

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Bridgestone Corp ADR are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak fundamental indicators, Bridgestone Corp showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Aptiv PLC and Bridgestone Corp

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

The idea behind Aptiv PLC and Bridgestone 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.