Correlation Between ScanSource and Goodyear Tire
Can any of the company-specific risk be diversified away by investing in both ScanSource and Goodyear Tire 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 ScanSource and Goodyear Tire into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between ScanSource and Goodyear Tire Rubber, you can compare the effects of market volatilities on ScanSource and Goodyear Tire 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 ScanSource with a short position of Goodyear Tire. Check out your portfolio center. Please also check ongoing floating volatility patterns of ScanSource and Goodyear Tire.
Diversification Opportunities for ScanSource and Goodyear Tire
0.83 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between ScanSource and Goodyear is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding ScanSource and Goodyear Tire Rubber in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Goodyear Tire Rubber and ScanSource 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 ScanSource are associated (or correlated) with Goodyear Tire. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Goodyear Tire Rubber has no effect on the direction of ScanSource i.e., ScanSource and Goodyear Tire go up and down completely randomly.
Pair Corralation between ScanSource and Goodyear Tire
Assuming the 90 days horizon ScanSource is expected to generate 21.02 times less return on investment than Goodyear Tire. But when comparing it to its historical volatility, ScanSource is 1.5 times less risky than Goodyear Tire. It trades about 0.01 of its potential returns per unit of risk. Goodyear Tire Rubber is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest 890.00 in Goodyear Tire Rubber on September 13, 2024 and sell it today you would earn a total of 70.00 from holding Goodyear Tire Rubber or generate 7.87% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
ScanSource vs. Goodyear Tire Rubber
Performance |
| Timeline |
| ScanSource |
| Goodyear Tire Rubber |
ScanSource and Goodyear Tire Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with ScanSource and Goodyear Tire
The main advantage of trading using opposite ScanSource and Goodyear Tire positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if ScanSource position performs unexpectedly, Goodyear Tire 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 Goodyear Tire will offset losses from the drop in Goodyear Tire's long position.The idea behind ScanSource and Goodyear Tire Rubber 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.| Goodyear Tire vs. Apple Inc | Goodyear Tire vs. Apple Inc | Goodyear Tire vs. Apple Inc | Goodyear Tire 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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.
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