Correlation Between Marchex and Goodyear

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

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

Diversification Opportunities for Marchex and Goodyear

-0.46

Correlation Coefficient

Marchex  Goodyear

Very good diversification

The 3 months correlation between Marchex and Goodyear is -0.46. Overlapping area represents the amount of risk that can be diversified away by holding Marchex 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 Marchex 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 Marchex are associated (or correlated) with Goodyear. 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 Marchex i.e., Marchex and Goodyear go up and down completely randomly.

Pair Corralation between Marchex and Goodyear

Given the investment horizon of 90 days Marchex is expected to generate 11.27 times more return on investment than Goodyear. However, Marchex is 11.27 times more volatile than Goodyear Tire Rubber. It trades about 0.07 of its potential returns per unit of risk. Goodyear Tire Rubber is currently generating about -0.02 per unit of risk. If you would invest  186.00  in Marchex on September 13, 2024 and sell it today you would earn a total of  26.00  from holding Marchex or generate 13.98% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	96.88%
Values	Daily Returns

Marchex  vs.  Goodyear Tire Rubber

Marchex

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Marchex are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unsteady technical indicators, Marchex showed solid returns over the last few months and may actually be approaching a breakup point.

Goodyear Tire Rubber

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Goodyear Tire Rubber has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Goodyear is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Marchex and Goodyear

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

The idea behind Marchex 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.

Check out your portfolio center.

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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.