Correlation Between GOODYEAR T and Continental Aktiengesellscha
Can any of the company-specific risk be diversified away by investing in both GOODYEAR T and Continental Aktiengesellscha 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 T and Continental Aktiengesellscha into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between GOODYEAR T RUBBER and Continental Aktiengesellschaft, you can compare the effects of market volatilities on GOODYEAR T and Continental Aktiengesellscha 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 T with a short position of Continental Aktiengesellscha. Check out your portfolio center. Please also check ongoing floating volatility patterns of GOODYEAR T and Continental Aktiengesellscha.
Diversification Opportunities for GOODYEAR T and Continental Aktiengesellscha
0.8 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between GOODYEAR and Continental is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding GOODYEAR T RUBBER and Continental Aktiengesellschaft in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Continental Aktiengesellscha and GOODYEAR T 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 T RUBBER are associated (or correlated) with Continental Aktiengesellscha. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Continental Aktiengesellscha has no effect on the direction of GOODYEAR T i.e., GOODYEAR T and Continental Aktiengesellscha go up and down completely randomly.
Pair Corralation between GOODYEAR T and Continental Aktiengesellscha
Assuming the 90 days trading horizon GOODYEAR T is expected to generate 1.39 times less return on investment than Continental Aktiengesellscha. In addition to that, GOODYEAR T is 2.12 times more volatile than Continental Aktiengesellschaft. It trades about 0.1 of its total potential returns per unit of risk. Continental Aktiengesellschaft is currently generating about 0.3 per unit of volatility. If you would invest 6,026 in Continental Aktiengesellschaft on September 14, 2024 and sell it today you would earn a total of 576.00 from holding Continental Aktiengesellschaft or generate 9.56% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
GOODYEAR T RUBBER vs. Continental Aktiengesellschaft
Performance |
| Timeline |
| GOODYEAR T RUBBER |
| Continental Aktiengesellscha |
GOODYEAR T and Continental Aktiengesellscha Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GOODYEAR T and Continental Aktiengesellscha
The main advantage of trading using opposite GOODYEAR T and Continental Aktiengesellscha positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GOODYEAR T position performs unexpectedly, Continental Aktiengesellscha 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 Continental Aktiengesellscha will offset losses from the drop in Continental Aktiengesellscha's long position.The idea behind GOODYEAR T RUBBER and Continental Aktiengesellschaft 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.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 Stocks Directory module to find actively traded stocks across global markets.
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