Correlation Between Bridgestone Corp and Knorr-Bremse Aktiengesellscha

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

Diversification Opportunities for Bridgestone Corp and Knorr-Bremse Aktiengesellscha

0.92

Correlation Coefficient

Bridgestone Corp  Knorr-Bremse Aktiengesellscha

Almost no diversification

The 3 months correlation between Bridgestone and Knorr-Bremse is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding Bridgestone Corp ADR and Knorr Bremse Aktiengesellschaf in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Knorr-Bremse Aktiengesellscha 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 Knorr-Bremse Aktiengesellscha. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Knorr-Bremse Aktiengesellscha has no effect on the direction of Bridgestone Corp i.e., Bridgestone Corp and Knorr-Bremse Aktiengesellscha go up and down completely randomly.

Pair Corralation between Bridgestone Corp and Knorr-Bremse Aktiengesellscha

Assuming the 90 days horizon Bridgestone Corp ADR is expected to under-perform the Knorr-Bremse Aktiengesellscha. But the pink sheet apears to be less risky and, when comparing its historical volatility, Bridgestone Corp ADR is 1.36 times less risky than Knorr-Bremse Aktiengesellscha. The pink sheet trades about -0.01 of its potential returns per unit of risk. The Knorr Bremse Aktiengesellschaft is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  1,600  in Knorr Bremse Aktiengesellschaft on October 23, 2024 and sell it today you would earn a total of  202.00  from holding Knorr Bremse Aktiengesellschaft or generate 12.63% return on investment over 90 days.

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

Bridgestone Corp ADR  vs.  Knorr Bremse Aktiengesellschaf

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.

Knorr-Bremse Aktiengesellscha

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Knorr Bremse Aktiengesellschaft has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Bridgestone Corp and Knorr-Bremse Aktiengesellscha

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

The idea behind Bridgestone Corp ADR and Knorr Bremse Aktiengesellschaft 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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.