Correlation Between Goodyear Tire and Japan Tobacco

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

Diversification Opportunities for Goodyear Tire and Japan Tobacco

0.25

Correlation Coefficient

Goodyear Tire  Japan Tobacco

Modest diversification

The 3 months correlation between Goodyear and Japan is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding Goodyear Tire Rubber and Japan Tobacco in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Japan Tobacco 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 Japan Tobacco. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Japan Tobacco has no effect on the direction of Goodyear Tire i.e., Goodyear Tire and Japan Tobacco go up and down completely randomly.

Pair Corralation between Goodyear Tire and Japan Tobacco

Assuming the 90 days trading horizon Goodyear Tire is expected to generate 3.38 times less return on investment than Japan Tobacco. In addition to that, Goodyear Tire is 1.73 times more volatile than Japan Tobacco. It trades about 0.01 of its total potential returns per unit of risk. Japan Tobacco is currently generating about 0.05 per unit of volatility. If you would invest  1,857  in Japan Tobacco on September 20, 2024 and sell it today you would earn a total of  700.00  from holding Japan Tobacco or generate 37.7% return on investment over 90 days.

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

Goodyear Tire Rubber  vs.  Japan Tobacco

Goodyear Tire Rubber

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Goodyear Tire Rubber are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile basic indicators, Goodyear Tire unveiled solid returns over the last few months and may actually be approaching a breakup point.

Japan Tobacco

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Japan Tobacco has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Japan Tobacco is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Goodyear Tire and Japan Tobacco

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

The idea behind Goodyear Tire Rubber and Japan Tobacco 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 Sync Your Broker module to sync your existing holdings, watchlists, positions or portfolios from thousands of online brokerage services, banks, investment account aggregators and robo-advisors..