Correlation Between Goodyear Tire and WuXi AppTec

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

Diversification Opportunities for Goodyear Tire and WuXi AppTec

0.64

Correlation Coefficient

Goodyear Tire  WuXi AppTec

Poor diversification

The 3 months correlation between Goodyear and WuXi is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Goodyear Tire Rubber and WuXi AppTec Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WuXi AppTec 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 WuXi AppTec. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of WuXi AppTec has no effect on the direction of Goodyear Tire i.e., Goodyear Tire and WuXi AppTec go up and down completely randomly.

Pair Corralation between Goodyear Tire and WuXi AppTec

Allowing for the 90-day total investment horizon Goodyear Tire Rubber is expected to generate 0.33 times more return on investment than WuXi AppTec. However, Goodyear Tire Rubber is 3.05 times less risky than WuXi AppTec. It trades about -0.06 of its potential returns per unit of risk. WuXi AppTec Co is currently generating about -0.13 per unit of risk. If you would invest  1,239  in Goodyear Tire Rubber on January 20, 2024 and sell it today you would lose (68.00) from holding Goodyear Tire Rubber or give up 5.49% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	97.67%
Values	Daily Returns

Goodyear Tire Rubber  vs.  WuXi AppTec Co

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 unfluctuating 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.

WuXi AppTec

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days WuXi AppTec Co has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unfluctuating performance in the last few months, the Stock's forward indicators remain nearly stable which may send shares a bit higher in May 2024. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Goodyear Tire and WuXi AppTec

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

The idea behind Goodyear Tire Rubber and WuXi AppTec Co 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.