Correlation Between Bridgestone Corp and Douglas Dynamics

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

Diversification Opportunities for Bridgestone Corp and Douglas Dynamics

0.78

Correlation Coefficient

Bridgestone Corp  Douglas Dynamics

Poor diversification

The 3 months correlation between Bridgestone and Douglas is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Bridgestone Corp ADR and Douglas Dynamics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Douglas Dynamics 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 Douglas Dynamics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Douglas Dynamics has no effect on the direction of Bridgestone Corp i.e., Bridgestone Corp and Douglas Dynamics go up and down completely randomly.

Pair Corralation between Bridgestone Corp and Douglas Dynamics

Assuming the 90 days horizon Bridgestone Corp ADR is expected to generate 0.78 times more return on investment than Douglas Dynamics. However, Bridgestone Corp ADR is 1.28 times less risky than Douglas Dynamics. It trades about 0.13 of its potential returns per unit of risk. Douglas Dynamics is currently generating about 0.01 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	Significant
Accuracy	100.0%
Values	Daily Returns

Bridgestone Corp ADR  vs.  Douglas Dynamics

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.

Douglas Dynamics

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Douglas Dynamics are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, Douglas Dynamics is not utilizing all of its potentials. The recent stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Bridgestone Corp and Douglas Dynamics

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

The idea behind Bridgestone Corp ADR and Douglas Dynamics 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.