Correlation Between Brembo SpA and Goodyear Tire

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

By analyzing existing cross correlation between Brembo SpA and Goodyear Tire Rubber, you can compare the effects of market volatilities on Brembo SpA and Goodyear Tire 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 Brembo SpA with a short position of Goodyear Tire. Check out your portfolio center. Please also check ongoing floating volatility patterns of Brembo SpA and Goodyear Tire.

Diversification Opportunities for Brembo SpA and Goodyear Tire

0.17

Correlation Coefficient

Brembo SpA  Goodyear Tire

Average diversification

The 3 months correlation between Brembo and Goodyear is 0.17. Overlapping area represents the amount of risk that can be diversified away by holding Brembo SpA and Goodyear Tire Rubber in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Goodyear Tire Rubber and Brembo SpA 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 Brembo SpA are associated (or correlated) with Goodyear Tire. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Goodyear Tire Rubber has no effect on the direction of Brembo SpA i.e., Brembo SpA and Goodyear Tire go up and down completely randomly.

Pair Corralation between Brembo SpA and Goodyear Tire

Assuming the 90 days horizon Brembo SpA is expected to generate 0.51 times more return on investment than Goodyear Tire. However, Brembo SpA is 1.96 times less risky than Goodyear Tire. It trades about 0.11 of its potential returns per unit of risk. Goodyear Tire Rubber is currently generating about -0.1 per unit of risk. If you would invest  908.00  in Brembo SpA on December 4, 2024 and sell it today you would earn a total of  106.00  from holding Brembo SpA or generate 11.67% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.33%
Values	Daily Returns

Brembo SpA  vs.  Goodyear Tire Rubber

Brembo SpA

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Brembo SpA are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, Brembo SpA reported solid returns over the last few months and may actually be approaching a breakup point.

Goodyear Tire Rubber

Risk-Adjusted Performance

Very Weak

Over the last 90 days Goodyear Tire Rubber has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unfluctuating performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in April 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with Brembo SpA and Goodyear Tire

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

The idea behind Brembo SpA and Goodyear Tire Rubber 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.