Correlation Between Continental and Bridgestone Corp

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

Diversification Opportunities for Continental and Bridgestone Corp

0.68

Correlation Coefficient

Continental  Bridgestone Corp

Poor diversification

The 3 months correlation between Continental and Bridgestone is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Continental AG PK and Bridgestone Corp ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bridgestone Corp ADR 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 Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bridgestone Corp ADR has no effect on the direction of Continental i.e., Continental and Bridgestone Corp go up and down completely randomly.

Pair Corralation between Continental and Bridgestone Corp

Assuming the 90 days horizon Continental AG PK is expected to generate 1.16 times more return on investment than Bridgestone Corp. However, Continental is 1.16 times more volatile than Bridgestone Corp ADR. It trades about 0.09 of its potential returns per unit of risk. Bridgestone Corp ADR is currently generating about 0.11 per unit of risk. If you would invest  656.00  in Continental AG PK on December 2, 2024 and sell it today you would earn a total of  55.00  from holding Continental AG PK or generate 8.38% return on investment over 90 days.

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

Continental AG PK  vs.  Bridgestone Corp ADR

Continental AG PK

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Continental AG PK are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of fairly fragile basic indicators, Continental may actually be approaching a critical reversion point that can send shares even higher in April 2025.

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 8 (%) 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.

Pair Trading with Continental and Bridgestone Corp

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

The idea behind Continental AG PK and Bridgestone Corp ADR 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.