Correlation Between Goodyear Tire and Bridgestone Corp

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

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

Diversification Opportunities for Goodyear Tire and Bridgestone Corp

0.36

Correlation Coefficient

Goodyear Tire  Bridgestone Corp

Weak diversification

The 3 months correlation between Goodyear and Bridgestone is 0.36. Overlapping area represents the amount of risk that can be diversified away by holding Goodyear Tire Rubber 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 Goodyear Tire 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 Goodyear Tire Rubber 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 Goodyear Tire i.e., Goodyear Tire and Bridgestone Corp go up and down completely randomly.

Pair Corralation between Goodyear Tire and Bridgestone Corp

Allowing for the 90-day total investment horizon Goodyear Tire is expected to generate 4.33 times less return on investment than Bridgestone Corp. In addition to that, Goodyear Tire is 2.61 times more volatile than Bridgestone Corp ADR. It trades about 0.02 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	Very Weak
Accuracy	100.0%
Values	Daily Returns

Goodyear Tire Rubber  vs.  Bridgestone Corp ADR

Goodyear Tire Rubber

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Goodyear Tire Rubber are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Goodyear Tire is not utilizing all of its potentials. The recent stock price uproar, may contribute to short-horizon losses for the private investors.

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 Goodyear Tire and Bridgestone Corp

The main advantage of trading using opposite Goodyear Tire and Bridgestone Corp positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Goodyear Tire 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 Goodyear Tire Rubber 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.