Correlation Between Nokian Renkaat and Bridgestone

Can any of the company-specific risk be diversified away by investing in both Nokian Renkaat and Bridgestone 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 Nokian Renkaat and Bridgestone into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Nokian Renkaat Oyj and Bridgestone, you can compare the effects of market volatilities on Nokian Renkaat and Bridgestone 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 Nokian Renkaat with a short position of Bridgestone. Check out your portfolio center. Please also check ongoing floating volatility patterns of Nokian Renkaat and Bridgestone.

Diversification Opportunities for Nokian Renkaat and Bridgestone

0.74

Correlation Coefficient

Nokian Renkaat  Bridgestone

Poor diversification

The 3 months correlation between Nokian and Bridgestone is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Nokian Renkaat Oyj and Bridgestone in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bridgestone and Nokian Renkaat 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 Nokian Renkaat Oyj are associated (or correlated) with Bridgestone. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bridgestone has no effect on the direction of Nokian Renkaat i.e., Nokian Renkaat and Bridgestone go up and down completely randomly.

Pair Corralation between Nokian Renkaat and Bridgestone

Assuming the 90 days horizon Nokian Renkaat Oyj is expected to under-perform the Bridgestone. In addition to that, Nokian Renkaat is 1.05 times more volatile than Bridgestone. It trades about -0.12 of its total potential returns per unit of risk. Bridgestone is currently generating about 0.02 per unit of volatility. If you would invest  3,345  in Bridgestone on September 4, 2024 and sell it today you would earn a total of  36.00  from holding Bridgestone or generate 1.08% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

Nokian Renkaat Oyj  vs.  Bridgestone

Nokian Renkaat Oyj

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Nokian Renkaat Oyj has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest uncertain performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Bridgestone

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Bridgestone are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Bridgestone is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Nokian Renkaat and Bridgestone

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

The idea behind Nokian Renkaat Oyj and Bridgestone 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.