Correlation Between Bridgestone Corp and Adient PLC

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

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

Diversification Opportunities for Bridgestone Corp and Adient PLC

0.85

Correlation Coefficient

Bridgestone Corp  Adient PLC

Very poor diversification

The 3 months correlation between Bridgestone and Adient is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Bridgestone Corp ADR and Adient PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Adient PLC and Bridgestone Corp 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 Corp ADR are associated (or correlated) with Adient PLC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Adient PLC has no effect on the direction of Bridgestone Corp i.e., Bridgestone Corp and Adient PLC go up and down completely randomly.

Pair Corralation between Bridgestone Corp and Adient PLC

Assuming the 90 days horizon Bridgestone Corp ADR is expected to under-perform the Adient PLC. But the pink sheet apears to be less risky and, when comparing its historical volatility, Bridgestone Corp ADR is 2.45 times less risky than Adient PLC. The pink sheet trades about -0.11 of its potential returns per unit of risk. The Adient PLC is currently generating about -0.03 of returns per unit of risk over similar time horizon. If you would invest  2,046  in Adient PLC on September 15, 2024 and sell it today you would lose (150.00) from holding Adient PLC or give up 7.33% of portfolio value over 90 days.

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

Bridgestone Corp ADR  vs.  Adient PLC

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.

Adient PLC

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Adient PLC has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Adient PLC is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Bridgestone Corp and Adient PLC

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

The idea behind Bridgestone Corp ADR and Adient PLC 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.