Correlation Between Goodyear Tire and Central Japan

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

Diversification Opportunities for Goodyear Tire and Central Japan

-0.17

Correlation Coefficient

Goodyear Tire  Central Japan

Good diversification

The 3 months correlation between Goodyear and Central is -0.17. Overlapping area represents the amount of risk that can be diversified away by holding Goodyear Tire Rubber and Central Japan Railway in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Central Japan Railway 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 Central Japan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Central Japan Railway has no effect on the direction of Goodyear Tire i.e., Goodyear Tire and Central Japan go up and down completely randomly.

Pair Corralation between Goodyear Tire and Central Japan

Assuming the 90 days trading horizon Goodyear Tire Rubber is expected to under-perform the Central Japan. In addition to that, Goodyear Tire is 1.77 times more volatile than Central Japan Railway. It trades about -0.29 of its total potential returns per unit of risk. Central Japan Railway is currently generating about -0.29 per unit of volatility. If you would invest  1,845  in Central Japan Railway on October 12, 2024 and sell it today you would lose (129.00) from holding Central Japan Railway or give up 6.99% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	94.44%
Values	Daily Returns

Goodyear Tire Rubber  vs.  Central Japan Railway

Goodyear Tire Rubber

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Goodyear Tire Rubber are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Goodyear Tire may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Central Japan Railway

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Central Japan Railway has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Goodyear Tire and Central Japan

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

The idea behind Goodyear Tire Rubber and Central Japan Railway 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.

Check out your portfolio center.

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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..