Correlation Between Subaru Corp and Bridgestone Corp

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

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

Diversification Opportunities for Subaru Corp and Bridgestone Corp

0.73

Correlation Coefficient

Subaru Corp  Bridgestone Corp

Poor diversification

The 3 months correlation between Subaru and Bridgestone is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Subaru Corp 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 Subaru 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 Subaru Corp 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 Subaru Corp i.e., Subaru Corp and Bridgestone Corp go up and down completely randomly.

Pair Corralation between Subaru Corp and Bridgestone Corp

Assuming the 90 days horizon Subaru Corp is expected to generate 31.67 times less return on investment than Bridgestone Corp. In addition to that, Subaru Corp is 2.48 times more volatile than Bridgestone Corp ADR. It trades about 0.0 of its total potential returns per unit of risk. Bridgestone Corp ADR is currently generating about 0.21 per unit of volatility. If you would invest  1,711  in Bridgestone Corp ADR on December 30, 2024 and sell it today you would earn a total of  311.00  from holding Bridgestone Corp ADR or generate 18.18% return on investment over 90 days.

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

Subaru Corp  vs.  Bridgestone Corp ADR

Subaru Corp

Risk-Adjusted Performance

Very Weak

Over the last 90 days Subaru Corp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable technical indicators, Subaru Corp is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Bridgestone Corp ADR

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Bridgestone Corp ADR are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak fundamental indicators, Bridgestone Corp showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Subaru Corp and Bridgestone Corp

The main advantage of trading using opposite Subaru Corp and Bridgestone Corp positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Subaru Corp 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 Subaru Corp 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.