Correlation Between Bridgestone and DENSO P

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

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

Diversification Opportunities for Bridgestone and DENSO P

-0.39

Correlation Coefficient

Bridgestone  DENSO P

Very good diversification

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

Pair Corralation between Bridgestone and DENSO P

Assuming the 90 days trading horizon Bridgestone is expected to generate 0.68 times more return on investment than DENSO P. However, Bridgestone is 1.46 times less risky than DENSO P. It trades about -0.06 of its potential returns per unit of risk. DENSO P ADR is currently generating about -0.27 per unit of risk. If you would invest  1,580  in Bridgestone on September 21, 2024 and sell it today you would lose (20.00) from holding Bridgestone or give up 1.27% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.65%
Values	Daily Returns

Bridgestone  vs.  DENSO P ADR

Bridgestone

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Bridgestone has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Bridgestone is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

DENSO P ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days DENSO P ADR has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, DENSO P is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Bridgestone and DENSO P

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

The idea behind Bridgestone and DENSO P 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.