Correlation Between Goodyear Tire and US Bancorp
Can any of the company-specific risk be diversified away by investing in both Goodyear Tire and US Bancorp 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 Goodyear Tire and US Bancorp into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between The Goodyear Tire and US Bancorp, you can compare the effects of market volatilities on Goodyear Tire and US Bancorp 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 Goodyear Tire with a short position of US Bancorp. Check out your portfolio center. Please also check ongoing floating volatility patterns of Goodyear Tire and US Bancorp.
Diversification Opportunities for Goodyear Tire and US Bancorp
0.8 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Goodyear and USB is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding The Goodyear Tire and US Bancorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on US Bancorp and Goodyear Tire 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 The Goodyear Tire are associated (or correlated) with US Bancorp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of US Bancorp has no effect on the direction of Goodyear Tire i.e., Goodyear Tire and US Bancorp go up and down completely randomly.
Pair Corralation between Goodyear Tire and US Bancorp
Assuming the 90 days horizon The Goodyear Tire is expected to generate 1.88 times more return on investment than US Bancorp. However, Goodyear Tire is 1.88 times more volatile than US Bancorp. It trades about 0.2 of its potential returns per unit of risk. US Bancorp is currently generating about 0.13 per unit of risk. If you would invest 16,700 in The Goodyear Tire on September 19, 2024 and sell it today you would earn a total of 2,900 from holding The Goodyear Tire or generate 17.37% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
The Goodyear Tire vs. US Bancorp
Performance |
| Timeline |
| Goodyear Tire |
| US Bancorp |
Goodyear Tire and US Bancorp Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Goodyear Tire and US Bancorp
The main advantage of trading using opposite Goodyear Tire and US Bancorp positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Goodyear Tire position performs unexpectedly, US Bancorp 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 US Bancorp will offset losses from the drop in US Bancorp's long position.| Goodyear Tire vs. Netflix | Goodyear Tire vs. Cognizant Technology Solutions | Goodyear Tire vs. The Walt Disney |
| US Bancorp vs. Netflix | US Bancorp vs. Honeywell International | US Bancorp vs. The Goodyear Tire | US Bancorp vs. The Walt Disney |
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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.
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