Correlation Between Goodyear Tire and Continental

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

Diversification Opportunities for Goodyear Tire and Continental

0.69

Correlation Coefficient

Goodyear Tire  Continental

Poor diversification

The 3 months correlation between Goodyear and Continental is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding Goodyear Tire Rubber and Continental AG PK in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Continental AG PK 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 Continental. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Continental AG PK has no effect on the direction of Goodyear Tire i.e., Goodyear Tire and Continental go up and down completely randomly.

Pair Corralation between Goodyear Tire and Continental

Allowing for the 90-day total investment horizon Goodyear Tire Rubber is expected to generate 1.3 times more return on investment than Continental. However, Goodyear Tire is 1.3 times more volatile than Continental AG PK. It trades about 0.14 of its potential returns per unit of risk. Continental AG PK is currently generating about 0.11 per unit of risk. If you would invest  784.00  in Goodyear Tire Rubber on September 13, 2024 and sell it today you would earn a total of  226.00  from holding Goodyear Tire Rubber or generate 28.83% return on investment over 90 days.

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

Goodyear Tire Rubber  vs.  Continental AG PK

Goodyear Tire Rubber

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Goodyear Tire Rubber are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unfluctuating basic indicators, Goodyear Tire unveiled solid returns over the last few months and may actually be approaching a breakup point.

Continental AG PK

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Continental AG PK are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of fairly uncertain basic indicators, Continental showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Goodyear Tire and Continental

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

The idea behind Goodyear Tire Rubber and Continental AG PK 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 Portfolio Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.