Correlation Between Goodyear Tire and American Axle
Can any of the company-specific risk be diversified away by investing in both Goodyear Tire and American Axle 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 American Axle into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Goodyear Tire Rubber and American Axle Manufacturing, you can compare the effects of market volatilities on Goodyear Tire and American Axle 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 American Axle. Check out your portfolio center. Please also check ongoing floating volatility patterns of Goodyear Tire and American Axle.
Diversification Opportunities for Goodyear Tire and American Axle
0.79 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Goodyear and American is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Goodyear Tire Rubber and American Axle Manufacturing in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Axle Manufa 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 Goodyear Tire Rubber are associated (or correlated) with American Axle. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Axle Manufa has no effect on the direction of Goodyear Tire i.e., Goodyear Tire and American Axle go up and down completely randomly.
Pair Corralation between Goodyear Tire and American Axle
Allowing for the 90-day total investment horizon Goodyear Tire Rubber is expected to generate 0.74 times more return on investment than American Axle. However, Goodyear Tire Rubber is 1.35 times less risky than American Axle. It trades about 0.26 of its potential returns per unit of risk. American Axle Manufacturing is currently generating about 0.01 per unit of risk. If you would invest 859.00 in Goodyear Tire Rubber on October 20, 2024 and sell it today you would earn a total of 79.00 from holding Goodyear Tire Rubber or generate 9.2% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Goodyear Tire Rubber vs. American Axle Manufacturing
Performance |
| Timeline |
| Goodyear Tire Rubber |
| American Axle Manufa |
Goodyear Tire and American Axle Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Goodyear Tire and American Axle
The main advantage of trading using opposite Goodyear Tire and American Axle positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Goodyear Tire position performs unexpectedly, American Axle 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 American Axle will offset losses from the drop in American Axle's long position.| Goodyear Tire vs. Allison Transmission Holdings | Goodyear Tire vs. Aptiv PLC | Goodyear Tire vs. LKQ Corporation | Goodyear Tire vs. Lear Corporation |
| American Axle vs. Lear Corporation | American Axle vs. Commercial Vehicle Group | American Axle vs. Adient PLC | American Axle vs. Gentex |
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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.
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