Correlation Between Goodyear Public and President Bakery

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

By analyzing existing cross correlation between Goodyear Public and President Bakery Public, you can compare the effects of market volatilities on Goodyear Public and President Bakery 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 Public with a short position of President Bakery. Check out your portfolio center. Please also check ongoing floating volatility patterns of Goodyear Public and President Bakery.

Diversification Opportunities for Goodyear Public and President Bakery

0.33

Correlation Coefficient

Goodyear Public  President Bakery

Weak diversification

The 3 months correlation between Goodyear and President is 0.33. Overlapping area represents the amount of risk that can be diversified away by holding Goodyear Public and President Bakery Public in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on President Bakery Public and Goodyear Public 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 Public are associated (or correlated) with President Bakery. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of President Bakery Public has no effect on the direction of Goodyear Public i.e., Goodyear Public and President Bakery go up and down completely randomly.

Pair Corralation between Goodyear Public and President Bakery

Assuming the 90 days trading horizon Goodyear Public is expected to generate 0.99 times more return on investment than President Bakery. However, Goodyear Public is 1.01 times less risky than President Bakery. It trades about 0.06 of its potential returns per unit of risk. President Bakery Public is currently generating about 0.03 per unit of risk. If you would invest  17,500  in Goodyear Public on October 6, 2024 and sell it today you would earn a total of  150.00  from holding Goodyear Public or generate 0.86% return on investment over 90 days.

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

Goodyear Public  vs.  President Bakery Public

Goodyear Public

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Goodyear Public are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting basic indicators, Goodyear Public disclosed solid returns over the last few months and may actually be approaching a breakup point.

President Bakery Public

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in President Bakery Public are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent fundamental drivers, President Bakery is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Goodyear Public and President Bakery

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

The idea behind Goodyear Public and President Bakery Public 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.