Correlation Between Bridgestone Corp and Goodyear Tire

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

Diversification Opportunities for Bridgestone Corp and Goodyear Tire

0.26

Correlation Coefficient

Bridgestone Corp  Goodyear Tire

Modest diversification

The 3 months correlation between Bridgestone and Goodyear is 0.26. Overlapping area represents the amount of risk that can be diversified away by holding Bridgestone Corp ADR 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 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 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 Bridgestone Corp i.e., Bridgestone Corp and Goodyear Tire go up and down completely randomly.

Pair Corralation between Bridgestone Corp and Goodyear Tire

Assuming the 90 days horizon Bridgestone Corp ADR is expected to generate 0.38 times more return on investment than Goodyear Tire. However, Bridgestone Corp ADR is 2.62 times less risky than Goodyear Tire. It trades about 0.13 of its potential returns per unit of risk. Goodyear Tire Rubber is currently generating about -0.08 per unit of risk. If you would invest  1,763  in Bridgestone Corp ADR on December 4, 2024 and sell it today you would earn a total of  182.00  from holding Bridgestone Corp ADR or generate 10.32% return on investment over 90 days.

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

Bridgestone Corp ADR  vs.  Goodyear Tire Rubber

Bridgestone Corp ADR

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Bridgestone Corp ADR are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak fundamental indicators, Bridgestone Corp may actually be approaching a critical reversion point that can send shares even higher in April 2025.

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 Bridgestone Corp and Goodyear Tire

The main advantage of trading using opposite Bridgestone Corp and Goodyear Tire positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Bridgestone Corp 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 Bridgestone Corp ADR 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.