Correlation Between Goodyear Tire and British American
Can any of the company-specific risk be diversified away by investing in both Goodyear Tire and British American 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 British American 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 British American Tobacco, you can compare the effects of market volatilities on Goodyear Tire and British American 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 British American. Check out your portfolio center. Please also check ongoing floating volatility patterns of Goodyear Tire and British American.
Diversification Opportunities for Goodyear Tire and British American
0.71 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Goodyear and British is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Goodyear Tire Rubber and British American Tobacco in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on British American Tobacco 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 British American. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of British American Tobacco has no effect on the direction of Goodyear Tire i.e., Goodyear Tire and British American go up and down completely randomly.
Pair Corralation between Goodyear Tire and British American
Assuming the 90 days trading horizon Goodyear Tire Rubber is expected to under-perform the British American. In addition to that, Goodyear Tire is 2.85 times more volatile than British American Tobacco. It trades about -0.11 of its total potential returns per unit of risk. British American Tobacco is currently generating about -0.09 per unit of volatility. If you would invest 3,542 in British American Tobacco on October 16, 2024 and sell it today you would lose (41.00) from holding British American Tobacco or give up 1.16% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Goodyear Tire Rubber vs. British American Tobacco
Performance |
| Timeline |
| Goodyear Tire Rubber |
| British American Tobacco |
Goodyear Tire and British American Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Goodyear Tire and British American
The main advantage of trading using opposite Goodyear Tire and British American positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Goodyear Tire position performs unexpectedly, British American 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 British American will offset losses from the drop in British American's long position.| Goodyear Tire vs. Marie Brizard Wine | Goodyear Tire vs. NAKED WINES PLC | Goodyear Tire vs. UNIVMUSIC GRPADR050 | Goodyear Tire vs. Pembina Pipeline Corp |
| British American vs. MagnaChip Semiconductor Corp | British American vs. NXP Semiconductors NV | British American vs. Heidelberg Materials AG | British American vs. Goodyear Tire Rubber |
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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.
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