Correlation Between Central Japan and Goodyear Tire

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

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

Diversification Opportunities for Central Japan and Goodyear Tire

-0.39

Correlation Coefficient

Central Japan  Goodyear Tire

Very good diversification

The 3 months correlation between Central and Goodyear is -0.39. Overlapping area represents the amount of risk that can be diversified away by holding Central Japan Railway and Goodyear Tire Rubber in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Goodyear Tire Rubber and Central Japan 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 Central Japan Railway are associated (or correlated) with Goodyear Tire. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Goodyear Tire Rubber has no effect on the direction of Central Japan i.e., Central Japan and Goodyear Tire go up and down completely randomly.

Pair Corralation between Central Japan and Goodyear Tire

Assuming the 90 days horizon Central Japan Railway is expected to generate 0.34 times more return on investment than Goodyear Tire. However, Central Japan Railway is 2.92 times less risky than Goodyear Tire. It trades about -0.42 of its potential returns per unit of risk. Goodyear Tire Rubber is currently generating about -0.15 per unit of risk. If you would invest  1,916  in Central Japan Railway on September 24, 2024 and sell it today you would lose (174.00) from holding Central Japan Railway or give up 9.08% of portfolio value over 90 days.

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

Central Japan Railway  vs.  Goodyear Tire Rubber

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 uncertain performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

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 fragile basic indicators, Goodyear Tire unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Central Japan and Goodyear Tire

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

The idea behind Central Japan Railway and Goodyear Tire Rubber 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 Center module to all portfolio management and optimization tools to improve performance of your portfolios.