Correlation Between Packagingof America and Bridgestone

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

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

Diversification Opportunities for Packagingof America and Bridgestone

-0.65

Correlation Coefficient

Packagingof America  Bridgestone

Excellent diversification

The 3 months correlation between Packagingof and Bridgestone is -0.65. Overlapping area represents the amount of risk that can be diversified away by holding Packaging of and Bridgestone in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bridgestone and Packagingof America 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 Packaging of 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 Packagingof America i.e., Packagingof America and Bridgestone go up and down completely randomly.

Pair Corralation between Packagingof America and Bridgestone

Assuming the 90 days horizon Packaging of is expected to generate 0.83 times more return on investment than Bridgestone. However, Packaging of is 1.2 times less risky than Bridgestone. It trades about 0.3 of its potential returns per unit of risk. Bridgestone is currently generating about 0.02 per unit of risk. If you would invest  18,228  in Packaging of on September 4, 2024 and sell it today you would earn a total of  4,932  from holding Packaging of or generate 27.06% return on investment over 90 days.

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

Packaging of  vs.  Bridgestone

Packagingof America

Risk-Adjusted Performance

23 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Packaging of are ranked lower than 23 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Packagingof America reported solid returns over the last few months and may actually be approaching a breakup point.

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 Packagingof America and Bridgestone

The main advantage of trading using opposite Packagingof America and Bridgestone positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Packagingof America 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 Packaging of 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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.