Correlation Between Goodyear Tire and Knorr Bremse

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

Diversification Opportunities for Goodyear Tire and Knorr Bremse

-0.52

Correlation Coefficient

Goodyear Tire  Knorr Bremse

Excellent diversification

The 3 months correlation between Goodyear and Knorr is -0.52. Overlapping area represents the amount of risk that can be diversified away by holding Goodyear Tire Rubber and Knorr Bremse Aktiengesellschaf in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Knorr Bremse Aktieng 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 Knorr Bremse. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Knorr Bremse Aktieng has no effect on the direction of Goodyear Tire i.e., Goodyear Tire and Knorr Bremse go up and down completely randomly.

Pair Corralation between Goodyear Tire and Knorr Bremse

Allowing for the 90-day total investment horizon Goodyear Tire Rubber is expected to under-perform the Knorr Bremse. In addition to that, Goodyear Tire is 1.35 times more volatile than Knorr Bremse Aktiengesellschaft. It trades about -0.42 of its total potential returns per unit of risk. Knorr Bremse Aktiengesellschaft is currently generating about -0.15 per unit of volatility. If you would invest  1,932  in Knorr Bremse Aktiengesellschaft on October 9, 2024 and sell it today you would lose (86.00) from holding Knorr Bremse Aktiengesellschaft or give up 4.45% of portfolio value over 90 days.

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

Goodyear Tire Rubber  vs.  Knorr Bremse Aktiengesellschaf

Goodyear Tire Rubber

Risk-Adjusted Performance

1 of 100

Insignificant

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.

Knorr Bremse Aktieng

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Knorr Bremse Aktiengesellschaft has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Goodyear Tire and Knorr Bremse

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

The idea behind Goodyear Tire Rubber and Knorr Bremse Aktiengesellschaft 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.