Correlation Between Continental and Bridgestone

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

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

Diversification Opportunities for Continental and Bridgestone

0.31

Correlation Coefficient

Continental  Bridgestone

Weak diversification

The 3 months correlation between Continental and Bridgestone is 0.31. Overlapping area represents the amount of risk that can be diversified away by holding Continental AG PK and Bridgestone in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bridgestone and Continental 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 Continental AG PK are associated (or correlated) with Bridgestone. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bridgestone has no effect on the direction of Continental i.e., Continental and Bridgestone go up and down completely randomly.

Pair Corralation between Continental and Bridgestone

Assuming the 90 days horizon Continental is expected to generate 7.59 times less return on investment than Bridgestone. But when comparing it to its historical volatility, Continental AG PK is 2.23 times less risky than Bridgestone. It trades about 0.01 of its potential returns per unit of risk. Bridgestone is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  3,636  in Bridgestone on December 4, 2024 and sell it today you would earn a total of  259.00  from holding Bridgestone or generate 7.12% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	48.88%
Values	Daily Returns

Continental AG PK  vs.  Bridgestone

Continental AG PK

Risk-Adjusted Performance

Modest

Over the last 90 days Continental AG PK has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, Continental is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Bridgestone

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Bridgestone are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak fundamental indicators, Bridgestone reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Continental and Bridgestone

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

The idea behind Continental AG PK and Bridgestone 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.

Check out your portfolio center.

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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .