Correlation Between US Bancorp and Goodyear Tire

Can any of the company-specific risk be diversified away by investing in both US Bancorp 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 Bancorp 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 Bancorp and The Goodyear Tire, you can compare the effects of market volatilities on US Bancorp 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 Bancorp with a short position of Goodyear Tire. Check out your portfolio center. Please also check ongoing floating volatility patterns of US Bancorp and Goodyear Tire.

Diversification Opportunities for US Bancorp and Goodyear Tire

0.8

Correlation Coefficient

US Bancorp  Goodyear Tire

Very poor diversification

The 3 months correlation between USB and Goodyear is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding US Bancorp and The Goodyear Tire in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Goodyear Tire and US Bancorp 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 Bancorp 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 US Bancorp i.e., US Bancorp and Goodyear Tire go up and down completely randomly.

Pair Corralation between US Bancorp and Goodyear Tire

Assuming the 90 days trading horizon US Bancorp is expected to generate 1.41 times less return on investment than Goodyear Tire. In addition to that, US Bancorp is 1.27 times more volatile than The Goodyear Tire. It trades about 0.18 of its total potential returns per unit of risk. The Goodyear Tire is currently generating about 0.31 per unit of volatility. If you would invest  15,125  in The Goodyear Tire on September 17, 2024 and sell it today you would earn a total of  5,675  from holding The Goodyear Tire or generate 37.52% return on investment over 90 days.

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

US Bancorp  vs.  The Goodyear Tire

US Bancorp

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in US Bancorp are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak fundamental drivers, US Bancorp showed solid returns over the last few months and may actually be approaching a breakup point.

Goodyear Tire

Risk-Adjusted Performance

24 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in The Goodyear Tire are ranked lower than 24 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak primary indicators, Goodyear Tire showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with US Bancorp and Goodyear Tire

The main advantage of trading using opposite US Bancorp and Goodyear Tire positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if US Bancorp 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 Bancorp 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.