Correlation Between Goodyear Tire and Highlight Communications

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

By analyzing existing cross correlation between The Goodyear Tire and Highlight Communications AG, you can compare the effects of market volatilities on Goodyear Tire and Highlight Communications 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 Highlight Communications. Check out your portfolio center. Please also check ongoing floating volatility patterns of Goodyear Tire and Highlight Communications.

Diversification Opportunities for Goodyear Tire and Highlight Communications

0.71

Correlation Coefficient

Goodyear Tire  Highlight Communications

Poor diversification

The 3 months correlation between Goodyear and Highlight is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding The Goodyear Tire and Highlight Communications AG in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Highlight Communications 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 The Goodyear Tire are associated (or correlated) with Highlight Communications. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Highlight Communications has no effect on the direction of Goodyear Tire i.e., Goodyear Tire and Highlight Communications go up and down completely randomly.

Pair Corralation between Goodyear Tire and Highlight Communications

Assuming the 90 days horizon The Goodyear Tire is expected to generate 1.2 times more return on investment than Highlight Communications. However, Goodyear Tire is 1.2 times more volatile than Highlight Communications AG. It trades about 0.0 of its potential returns per unit of risk. Highlight Communications AG is currently generating about -0.08 per unit of risk. If you would invest  986.00  in The Goodyear Tire on October 5, 2024 and sell it today you would lose (148.00) from holding The Goodyear Tire or give up 15.01% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	99.78%
Values	Daily Returns

The Goodyear Tire  vs.  Highlight Communications AG

Goodyear Tire

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in The Goodyear Tire are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, Goodyear Tire reported solid returns over the last few months and may actually be approaching a breakup point.

Highlight Communications

Risk-Adjusted Performance

11 of 100

Good

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

Pair Trading with Goodyear Tire and Highlight Communications

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

The idea behind The Goodyear Tire and Highlight Communications AG 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.