Correlation Between Goodyear Tire and Renesas Electronics

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

Diversification Opportunities for Goodyear Tire and Renesas Electronics

-0.47

Correlation Coefficient

Goodyear Tire  Renesas Electronics

Very good diversification

The 3 months correlation between Goodyear and Renesas is -0.47. Overlapping area represents the amount of risk that can be diversified away by holding Goodyear Tire Rubber and Renesas Electronics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Renesas 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 Renesas Electronics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Renesas Electronics has no effect on the direction of Goodyear Tire i.e., Goodyear Tire and Renesas Electronics go up and down completely randomly.

Pair Corralation between Goodyear Tire and Renesas Electronics

Assuming the 90 days trading horizon Goodyear Tire Rubber is expected to generate 1.03 times more return on investment than Renesas Electronics. However, Goodyear Tire is 1.03 times more volatile than Renesas Electronics. It trades about 0.16 of its potential returns per unit of risk. Renesas Electronics is currently generating about -0.1 per unit of risk. If you would invest  763.00  in Goodyear Tire Rubber on September 3, 2024 and sell it today you would earn a total of  234.00  from holding Goodyear Tire Rubber or generate 30.67% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Goodyear Tire Rubber  vs.  Renesas Electronics

Goodyear Tire Rubber

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Goodyear Tire Rubber are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Goodyear Tire unveiled solid returns over the last few months and may actually be approaching a breakup point.

Renesas Electronics

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Renesas Electronics has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Goodyear Tire and Renesas Electronics

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

The idea behind Goodyear Tire Rubber and Renesas Electronics 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.