Correlation Between Bayerische Motoren and Bridgestone Corp

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

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

Diversification Opportunities for Bayerische Motoren and Bridgestone Corp

0.82

Correlation Coefficient

Bayerische Motoren  Bridgestone Corp

Very poor diversification

The 3 months correlation between Bayerische and Bridgestone is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Bayerische Motoren Werke 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 Bayerische Motoren 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 Bayerische Motoren Werke 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 Bayerische Motoren i.e., Bayerische Motoren and Bridgestone Corp go up and down completely randomly.

Pair Corralation between Bayerische Motoren and Bridgestone Corp

Assuming the 90 days horizon Bayerische Motoren Werke is expected to generate 1.96 times more return on investment than Bridgestone Corp. However, Bayerische Motoren is 1.96 times more volatile than Bridgestone Corp ADR. It trades about 0.06 of its potential returns per unit of risk. Bridgestone Corp ADR is currently generating about -0.11 per unit of risk. If you would invest  2,627  in Bayerische Motoren Werke on September 12, 2024 and sell it today you would earn a total of  166.00  from holding Bayerische Motoren Werke or generate 6.32% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.44%
Values	Daily Returns

Bayerische Motoren Werke  vs.  Bridgestone Corp ADR

Bayerische Motoren Werke

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Bayerische Motoren Werke are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Bayerische Motoren may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Bridgestone Corp ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Bridgestone Corp ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's fundamental indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Bayerische Motoren and Bridgestone Corp

The main advantage of trading using opposite Bayerische Motoren and Bridgestone Corp positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Bayerische Motoren 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 Bayerische Motoren Werke 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.