Correlation Between Goodyear Tire and Autoliv

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

Diversification Opportunities for Goodyear Tire and Autoliv

-0.37

Correlation Coefficient

Goodyear Tire  Autoliv

Very good diversification

The 3 months correlation between Goodyear and Autoliv is -0.37. Overlapping area represents the amount of risk that can be diversified away by holding Goodyear Tire Rubber and Autoliv in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Autoliv 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 Autoliv. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Autoliv has no effect on the direction of Goodyear Tire i.e., Goodyear Tire and Autoliv go up and down completely randomly.

Pair Corralation between Goodyear Tire and Autoliv

Allowing for the 90-day total investment horizon Goodyear Tire Rubber is expected to under-perform the Autoliv. In addition to that, Goodyear Tire is 1.8 times more volatile than Autoliv. It trades about -0.2 of its total potential returns per unit of risk. Autoliv is currently generating about -0.1 per unit of volatility. If you would invest  12,106  in Autoliv on January 26, 2024 and sell it today you would lose (312.00) from holding Autoliv or give up 2.58% of portfolio value over 90 days.

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

Goodyear Tire Rubber  vs.  Autoliv

Goodyear Tire Rubber

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Goodyear Tire Rubber has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fragile performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in May 2024. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Autoliv

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Autoliv are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of fairly fragile essential indicators, Autoliv may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Pair Trading with Goodyear Tire and Autoliv

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

The idea behind Goodyear Tire Rubber and Autoliv 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.

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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.