Correlation Between Goodyear Tire and Dorman Products

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

Diversification Opportunities for Goodyear Tire and Dorman Products

-0.26

Correlation Coefficient

Goodyear Tire  Dorman Products

Very good diversification

The 3 months correlation between Goodyear and Dorman is -0.26. Overlapping area represents the amount of risk that can be diversified away by holding Goodyear Tire Rubber and Dorman Products in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dorman Products 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 Dorman Products. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dorman Products has no effect on the direction of Goodyear Tire i.e., Goodyear Tire and Dorman Products go up and down completely randomly.

Pair Corralation between Goodyear Tire and Dorman Products

Allowing for the 90-day total investment horizon Goodyear Tire Rubber is expected to generate 2.27 times more return on investment than Dorman Products. However, Goodyear Tire is 2.27 times more volatile than Dorman Products. It trades about 0.02 of its potential returns per unit of risk. Dorman Products is currently generating about -0.04 per unit of risk. If you would invest  876.00  in Goodyear Tire Rubber on December 29, 2024 and sell it today you would earn a total of  3.00  from holding Goodyear Tire Rubber or generate 0.34% return on investment over 90 days.

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

Goodyear Tire Rubber  vs.  Dorman Products

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.

Dorman Products

Risk-Adjusted Performance

Very Weak

Over the last 90 days Dorman Products has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Dorman Products is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Goodyear Tire and Dorman Products

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

The idea behind Goodyear Tire Rubber and Dorman Products 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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..