Correlation Between Goodyear Tire and National Health

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

Diversification Opportunities for Goodyear Tire and National Health

0.12

Correlation Coefficient

Goodyear Tire  National Health

Average diversification

The 3 months correlation between Goodyear and National is 0.12. Overlapping area represents the amount of risk that can be diversified away by holding Goodyear Tire Rubber and National Health Investors in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on National Health Investors 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 National Health. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of National Health Investors has no effect on the direction of Goodyear Tire i.e., Goodyear Tire and National Health go up and down completely randomly.

Pair Corralation between Goodyear Tire and National Health

Assuming the 90 days trading horizon Goodyear Tire Rubber is expected to generate 1.48 times more return on investment than National Health. However, Goodyear Tire is 1.48 times more volatile than National Health Investors. It trades about 0.08 of its potential returns per unit of risk. National Health Investors is currently generating about -0.08 per unit of risk. If you would invest  749.00  in Goodyear Tire Rubber on October 5, 2024 and sell it today you would earn a total of  89.00  from holding Goodyear Tire Rubber or generate 11.88% 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.  National Health Investors

Goodyear Tire Rubber

Risk-Adjusted Performance

0 of 100

Insignificant

Over the last 90 days Goodyear Tire Rubber has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively uncertain basic indicators, Goodyear Tire unveiled solid returns over the last few months and may actually be approaching a breakup point.

National Health Investors

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days National Health Investors has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Pair Trading with Goodyear Tire and National Health

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

The idea behind Goodyear Tire Rubber and National Health Investors 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.