Correlation Between Goodyear Tire and LG Electronics
Can any of the company-specific risk be diversified away by investing in both Goodyear Tire and LG Electronics 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 LG Electronics 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 LG Electronics, you can compare the effects of market volatilities on Goodyear Tire and LG Electronics 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 LG Electronics. Check out your portfolio center. Please also check ongoing floating volatility patterns of Goodyear Tire and LG Electronics.
Diversification Opportunities for Goodyear Tire and LG Electronics
-0.77 | Correlation Coefficient |
Pay attention - limited upside
The 3 months correlation between Goodyear and LGLG is -0.77. Overlapping area represents the amount of risk that can be diversified away by holding Goodyear Tire Rubber and LG Electronics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LG Electronics 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 LG Electronics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LG Electronics has no effect on the direction of Goodyear Tire i.e., Goodyear Tire and LG Electronics go up and down completely randomly.
Pair Corralation between Goodyear Tire and LG Electronics
Assuming the 90 days trading horizon Goodyear Tire Rubber is expected to generate 2.04 times more return on investment than LG Electronics. However, Goodyear Tire is 2.04 times more volatile than LG Electronics. It trades about 0.46 of its potential returns per unit of risk. LG Electronics is currently generating about -0.18 per unit of risk. If you would invest 746.00 in Goodyear Tire Rubber on September 4, 2024 and sell it today you would earn a total of 296.00 from holding Goodyear Tire Rubber or generate 39.68% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Goodyear Tire Rubber vs. LG Electronics
Performance |
| Timeline |
| Goodyear Tire Rubber |
| LG Electronics |
Goodyear Tire and LG Electronics Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Goodyear Tire and LG Electronics
The main advantage of trading using opposite Goodyear Tire and LG Electronics positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Goodyear Tire position performs unexpectedly, LG Electronics 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 LG Electronics will offset losses from the drop in LG Electronics' long position.| Goodyear Tire vs. Apple Inc | Goodyear Tire vs. Apple Inc | Goodyear Tire vs. Apple Inc | Goodyear Tire vs. Apple Inc |
| LG Electronics vs. Apple Inc | LG Electronics vs. Apple Inc | LG Electronics vs. Apple Inc | LG Electronics 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.
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