Correlation Between CLEAN ENERGY and Goodyear Tire

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

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

Diversification Opportunities for CLEAN ENERGY and Goodyear Tire

0.33

Correlation Coefficient

CLEAN ENERGY  Goodyear Tire

Weak diversification

The 3 months correlation between CLEAN and Goodyear is 0.33. Overlapping area represents the amount of risk that can be diversified away by holding CLEAN ENERGY FUELS 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 CLEAN ENERGY 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 CLEAN ENERGY FUELS 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 CLEAN ENERGY i.e., CLEAN ENERGY and Goodyear Tire go up and down completely randomly.

Pair Corralation between CLEAN ENERGY and Goodyear Tire

Assuming the 90 days trading horizon CLEAN ENERGY FUELS is expected to generate 1.35 times more return on investment than Goodyear Tire. However, CLEAN ENERGY is 1.35 times more volatile than Goodyear Tire Rubber. It trades about 0.22 of its potential returns per unit of risk. Goodyear Tire Rubber is currently generating about -0.27 per unit of risk. If you would invest  259.00  in CLEAN ENERGY FUELS on October 11, 2024 and sell it today you would earn a total of  32.00  from holding CLEAN ENERGY FUELS or generate 12.36% return on investment over 90 days.

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

CLEAN ENERGY FUELS  vs.  Goodyear Tire Rubber

CLEAN ENERGY FUELS

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in CLEAN ENERGY FUELS are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile basic indicators, CLEAN ENERGY exhibited 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 CLEAN ENERGY and Goodyear Tire

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