Correlation Between Bridgestone Corp and Brembo SpA

Can any of the company-specific risk be diversified away by investing in both Bridgestone Corp and Brembo SpA 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 Brembo SpA 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 Brembo SpA, you can compare the effects of market volatilities on Bridgestone Corp and Brembo SpA 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 Brembo SpA. Check out your portfolio center. Please also check ongoing floating volatility patterns of Bridgestone Corp and Brembo SpA.

Diversification Opportunities for Bridgestone Corp and Brembo SpA

0.6

Correlation Coefficient

Bridgestone Corp  Brembo SpA

Poor diversification

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

Pair Corralation between Bridgestone Corp and Brembo SpA

Assuming the 90 days horizon Bridgestone Corp ADR is expected to generate 0.5 times more return on investment than Brembo SpA. However, Bridgestone Corp ADR is 2.02 times less risky than Brembo SpA. It trades about 0.21 of its potential returns per unit of risk. Brembo SpA is currently generating about -0.01 per unit of risk. If you would invest  1,711  in Bridgestone Corp ADR on December 30, 2024 and sell it today you would earn a total of  311.00  from holding Bridgestone Corp ADR or generate 18.18% return on investment over 90 days.

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

Bridgestone Corp ADR  vs.  Brembo SpA

Bridgestone Corp ADR

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Bridgestone Corp ADR are ranked lower than 16 (%) 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.

Brembo SpA

Risk-Adjusted Performance

Weak

Over the last 90 days Brembo SpA has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Brembo SpA 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 Corp and Brembo SpA

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

The idea behind Bridgestone Corp ADR and Brembo SpA 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 Dashboard module to portfolio dashboard that provides centralized access to all your investments.