Correlation Between APPLIED MATERIALS and Goodyear Tire
Can any of the company-specific risk be diversified away by investing in both APPLIED MATERIALS 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 APPLIED MATERIALS and Goodyear Tire into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between APPLIED MATERIALS and Goodyear Tire Rubber, you can compare the effects of market volatilities on APPLIED MATERIALS 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 APPLIED MATERIALS with a short position of Goodyear Tire. Check out your portfolio center. Please also check ongoing floating volatility patterns of APPLIED MATERIALS and Goodyear Tire.
Diversification Opportunities for APPLIED MATERIALS and Goodyear Tire
0.1 | Correlation Coefficient |
Average diversification
The 3 months correlation between APPLIED and Goodyear is 0.1. Overlapping area represents the amount of risk that can be diversified away by holding APPLIED MATERIALS 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 APPLIED MATERIALS 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 APPLIED MATERIALS 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 APPLIED MATERIALS i.e., APPLIED MATERIALS and Goodyear Tire go up and down completely randomly.
Pair Corralation between APPLIED MATERIALS and Goodyear Tire
Assuming the 90 days trading horizon APPLIED MATERIALS is expected to under-perform the Goodyear Tire. But the stock apears to be less risky and, when comparing its historical volatility, APPLIED MATERIALS is 1.31 times less risky than Goodyear Tire. The stock trades about -0.01 of its potential returns per unit of risk. The Goodyear Tire Rubber is currently generating about 0.25 of returns per unit of risk over similar time horizon. If you would invest 777.00 in Goodyear Tire Rubber on August 25, 2024 and sell it today you would earn a total of 159.00 from holding Goodyear Tire Rubber or generate 20.46% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 95.65% |
| Values | Daily Returns |
APPLIED MATERIALS vs. Goodyear Tire Rubber
Performance |
| Timeline |
| APPLIED MATERIALS |
| Goodyear Tire Rubber |
APPLIED MATERIALS and Goodyear Tire Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with APPLIED MATERIALS and Goodyear Tire
The main advantage of trading using opposite APPLIED MATERIALS and Goodyear Tire positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if APPLIED MATERIALS 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.| APPLIED MATERIALS vs. Apple Inc | APPLIED MATERIALS vs. Apple Inc | APPLIED MATERIALS vs. Apple Inc | APPLIED MATERIALS vs. Apple Inc |
| Goodyear Tire vs. Apple Inc | Goodyear Tire vs. Apple Inc | Goodyear Tire vs. Apple Inc | Goodyear Tire vs. Apple Inc |
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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.
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