Correlation Between Goodyear Tire and Vulcan Materials

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

Diversification Opportunities for Goodyear Tire and Vulcan Materials

0.18

Correlation Coefficient

Goodyear Tire  Vulcan Materials

Average diversification

The 3 months correlation between Goodyear and Vulcan is 0.18. Overlapping area represents the amount of risk that can be diversified away by holding Goodyear Tire Rubber and Vulcan Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vulcan Materials 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 Vulcan Materials. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vulcan Materials has no effect on the direction of Goodyear Tire i.e., Goodyear Tire and Vulcan Materials go up and down completely randomly.

Pair Corralation between Goodyear Tire and Vulcan Materials

Assuming the 90 days trading horizon Goodyear Tire Rubber is expected to generate 1.9 times more return on investment than Vulcan Materials. However, Goodyear Tire is 1.9 times more volatile than Vulcan Materials. It trades about 0.04 of its potential returns per unit of risk. Vulcan Materials is currently generating about -0.14 per unit of risk. If you would invest  821.00  in Goodyear Tire Rubber on December 23, 2024 and sell it today you would earn a total of  35.00  from holding Goodyear Tire Rubber or generate 4.26% return on investment over 90 days.

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

Goodyear Tire Rubber  vs.  Vulcan Materials

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 2 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile basic indicators, Goodyear Tire may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Vulcan Materials

Risk-Adjusted Performance

Very Weak

Over the last 90 days Vulcan Materials 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 April 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Goodyear Tire and Vulcan Materials

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

The idea behind Goodyear Tire Rubber and Vulcan Materials 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..