Correlation Between Bank of America and Goodyear Tire
Can any of the company-specific risk be diversified away by investing in both Bank of America 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 Bank of America and Goodyear Tire into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Verizon Communications and Goodyear Tire Rubber, you can compare the effects of market volatilities on Bank of America 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 Bank of America with a short position of Goodyear Tire. Check out your portfolio center. Please also check ongoing floating volatility patterns of Bank of America and Goodyear Tire.
Diversification Opportunities for Bank of America and Goodyear Tire
0.48 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Bank and Goodyear is 0.48. Overlapping area represents the amount of risk that can be diversified away by holding Verizon Communications 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 Bank of America 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 Verizon Communications 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 Bank of America i.e., Bank of America and Goodyear Tire go up and down completely randomly.
Pair Corralation between Bank of America and Goodyear Tire
Assuming the 90 days trading horizon Bank of America is expected to generate 4.61 times less return on investment than Goodyear Tire. But when comparing it to its historical volatility, Verizon Communications is 2.86 times less risky than Goodyear Tire. It trades about 0.26 of its potential returns per unit of risk. Goodyear Tire Rubber is currently generating about 0.42 of returns per unit of risk over similar time horizon. If you would invest 739.00 in Goodyear Tire Rubber on September 1, 2024 and sell it today you would earn a total of 258.00 from holding Goodyear Tire Rubber or generate 34.91% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Verizon Communications vs. Goodyear Tire Rubber
Performance |
| Timeline |
| Verizon Communications |
| Goodyear Tire Rubber |
Bank of America and Goodyear Tire Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Bank of America and Goodyear Tire
The main advantage of trading using opposite Bank of America and Goodyear Tire positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Bank of America 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.| Bank of America vs. Regions Financial | Bank of America vs. Shin Etsu Chemical Co | Bank of America vs. Sumitomo Chemical | Bank of America vs. CHEMICAL INDUSTRIES |
| 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 Global Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.
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