Correlation Between Essentra Plc and Bridgestone

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

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

Diversification Opportunities for Essentra Plc and Bridgestone

0.29

Correlation Coefficient

Essentra Plc  Bridgestone

Modest diversification

The 3 months correlation between Essentra and Bridgestone is 0.29. Overlapping area represents the amount of risk that can be diversified away by holding Essentra plc and Bridgestone in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bridgestone and Essentra Plc 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 Essentra plc are associated (or correlated) with Bridgestone. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bridgestone has no effect on the direction of Essentra Plc i.e., Essentra Plc and Bridgestone go up and down completely randomly.

Pair Corralation between Essentra Plc and Bridgestone

Assuming the 90 days horizon Essentra plc is expected to under-perform the Bridgestone. In addition to that, Essentra Plc is 1.31 times more volatile than Bridgestone. It trades about -0.35 of its total potential returns per unit of risk. Bridgestone is currently generating about -0.05 per unit of volatility. If you would invest  3,305  in Bridgestone on October 10, 2024 and sell it today you would lose (51.00) from holding Bridgestone or give up 1.54% of portfolio value over 90 days.

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

Essentra plc  vs.  Bridgestone

Essentra plc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Essentra plc has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest uncertain performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Bridgestone

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Bridgestone has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Bridgestone is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Essentra Plc and Bridgestone

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

The idea behind Essentra plc and Bridgestone 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 Transaction History module to view history of all your transactions and understand their impact on performance.