Correlation Between US Physical and Goodyear Tire

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

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

Diversification Opportunities for US Physical and Goodyear Tire

0.83

Correlation Coefficient

US Physical  Goodyear Tire

Very poor diversification

The 3 months correlation between UPH and Goodyear is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding US Physical Therapy 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 US Physical 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 US Physical Therapy 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 US Physical i.e., US Physical and Goodyear Tire go up and down completely randomly.

Pair Corralation between US Physical and Goodyear Tire

Assuming the 90 days horizon US Physical Therapy is expected to generate 0.7 times more return on investment than Goodyear Tire. However, US Physical Therapy is 1.43 times less risky than Goodyear Tire. It trades about 0.01 of its potential returns per unit of risk. Goodyear Tire Rubber is currently generating about 0.0 per unit of risk. If you would invest  8,124  in US Physical Therapy on October 11, 2024 and sell it today you would earn a total of  426.00  from holding US Physical Therapy or generate 5.24% return on investment over 90 days.

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

US Physical Therapy  vs.  Goodyear Tire Rubber

US Physical Therapy

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in US Physical Therapy are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, US Physical reported solid returns over the last few months and may actually be approaching a breakup point.

Goodyear Tire Rubber

Risk-Adjusted Performance

4 of 100

Insignificant

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

Pair Trading with US Physical and Goodyear Tire

The main advantage of trading using opposite US Physical and Goodyear Tire positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if US Physical 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 US Physical Therapy 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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.