Correlation Between Smurfit Kappa and Goodyear Tire

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Can any of the company-specific risk be diversified away by investing in both Smurfit Kappa 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 Smurfit Kappa and Goodyear Tire into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Smurfit Kappa Group and The Goodyear Tire, you can compare the effects of market volatilities on Smurfit Kappa 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 Smurfit Kappa with a short position of Goodyear Tire. Check out your portfolio center. Please also check ongoing floating volatility patterns of Smurfit Kappa and Goodyear Tire.

Diversification Opportunities for Smurfit Kappa and Goodyear Tire

0.86
  Correlation Coefficient

Very poor diversification

The 3 months correlation between Smurfit and Goodyear is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Smurfit Kappa Group and The Goodyear Tire in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Goodyear Tire and Smurfit Kappa 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 Smurfit Kappa Group 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 has no effect on the direction of Smurfit Kappa i.e., Smurfit Kappa and Goodyear Tire go up and down completely randomly.

Pair Corralation between Smurfit Kappa and Goodyear Tire

Assuming the 90 days horizon Smurfit Kappa Group is expected to generate 0.72 times more return on investment than Goodyear Tire. However, Smurfit Kappa Group is 1.39 times less risky than Goodyear Tire. It trades about 0.05 of its potential returns per unit of risk. The Goodyear Tire is currently generating about 0.0 per unit of risk. If you would invest  3,151  in Smurfit Kappa Group on September 23, 2024 and sell it today you would earn a total of  1,829  from holding Smurfit Kappa Group or generate 58.05% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthStrong
Accuracy99.8%
ValuesDaily Returns

Smurfit Kappa Group  vs.  The Goodyear Tire

 Performance 
       Timeline  
Smurfit Kappa Group 

Risk-Adjusted Performance

8 of 100

 
Weak
 
Strong
OK
Compared to the overall equity markets, risk-adjusted returns on investments in Smurfit Kappa Group are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Smurfit Kappa reported solid returns over the last few months and may actually be approaching a breakup point.
Goodyear Tire 

Risk-Adjusted Performance

4 of 100

 
Weak
 
Strong
Insignificant
Compared to the overall equity markets, risk-adjusted returns on investments in The Goodyear Tire are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Goodyear Tire may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Smurfit Kappa and Goodyear Tire Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Smurfit Kappa and Goodyear Tire

The main advantage of trading using opposite Smurfit Kappa and Goodyear Tire positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Smurfit Kappa 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 Smurfit Kappa Group and The Goodyear Tire 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.

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