Correlation Between Goodyear Tire and Standard

Can any of the company-specific risk be diversified away by investing in both Goodyear Tire and Standard 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 Standard 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 Standard Motor Products, you can compare the effects of market volatilities on Goodyear Tire and Standard 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 Standard. Check out your portfolio center. Please also check ongoing floating volatility patterns of Goodyear Tire and Standard.

Diversification Opportunities for Goodyear Tire and Standard

0.61

Correlation Coefficient

Goodyear Tire  Standard

Poor diversification

The 3 months correlation between Goodyear and Standard is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding Goodyear Tire Rubber and Standard Motor Products in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Standard Motor Products 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 Standard. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Standard Motor Products has no effect on the direction of Goodyear Tire i.e., Goodyear Tire and Standard go up and down completely randomly.

Pair Corralation between Goodyear Tire and Standard

Allowing for the 90-day total investment horizon Goodyear Tire Rubber is expected to under-perform the Standard. In addition to that, Goodyear Tire is 1.23 times more volatile than Standard Motor Products. It trades about -0.05 of its total potential returns per unit of risk. Standard Motor Products is currently generating about -0.03 per unit of volatility. If you would invest  3,839  in Standard Motor Products on September 25, 2024 and sell it today you would lose (763.00) from holding Standard Motor Products or give up 19.87% 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.  Standard Motor Products

Goodyear Tire Rubber

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Goodyear Tire Rubber are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unfluctuating basic indicators, Goodyear Tire may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Standard Motor Products

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Standard Motor Products has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable primary indicators, Standard is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Goodyear Tire and Standard

The main advantage of trading using opposite Goodyear Tire and Standard positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Goodyear Tire position performs unexpectedly, Standard 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 Standard will offset losses from the drop in Standard's long position.

The idea behind Goodyear Tire Rubber and Standard Motor Products 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.

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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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.