Correlation Between Nokian Renkaat and Bridgestone Corp

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

Diversification Opportunities for Nokian Renkaat and Bridgestone Corp

-0.15

Correlation Coefficient

Nokian Renkaat  Bridgestone Corp

Good diversification

The 3 months correlation between Nokian and Bridgestone is -0.15. Overlapping area represents the amount of risk that can be diversified away by holding Nokian Renkaat Oyj and Bridgestone Corp ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bridgestone Corp ADR 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 Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bridgestone Corp ADR has no effect on the direction of Nokian Renkaat i.e., Nokian Renkaat and Bridgestone Corp go up and down completely randomly.

Pair Corralation between Nokian Renkaat and Bridgestone Corp

Assuming the 90 days horizon Nokian Renkaat Oyj is expected to under-perform the Bridgestone Corp. In addition to that, Nokian Renkaat is 2.74 times more volatile than Bridgestone Corp ADR. It trades about -0.01 of its total potential returns per unit of risk. Bridgestone Corp ADR is currently generating about 0.03 per unit of volatility. If you would invest  1,868  in Bridgestone Corp ADR on February 3, 2024 and sell it today you would earn a total of  348.00  from holding Bridgestone Corp ADR or generate 18.63% return on investment over 90 days.

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

Nokian Renkaat Oyj  vs.  Bridgestone Corp ADR

Nokian Renkaat Oyj

Risk-Adjusted Performance

1 of 100

Weak

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

Bridgestone Corp ADR

Risk-Adjusted Performance

5 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Bridgestone Corp ADR are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong fundamental indicators, Bridgestone Corp is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Nokian Renkaat and Bridgestone Corp

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

The idea behind Nokian Renkaat Oyj and Bridgestone Corp ADR 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.