Correlation Between Douglas Dynamics and Goodyear Tire

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

By analyzing existing cross correlation between Douglas Dynamics and Goodyear Tire Rubber, you can compare the effects of market volatilities on Douglas Dynamics and Goodyear Tire 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 Douglas Dynamics with a short position of Goodyear Tire. Check out your portfolio center. Please also check ongoing floating volatility patterns of Douglas Dynamics and Goodyear Tire.

Diversification Opportunities for Douglas Dynamics and Goodyear Tire

0.3

Correlation Coefficient

Douglas Dynamics  Goodyear Tire

Weak diversification

The 3 months correlation between Douglas and Goodyear is 0.3. Overlapping area represents the amount of risk that can be diversified away by holding Douglas Dynamics and Goodyear Tire Rubber in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Goodyear Tire Rubber and Douglas Dynamics 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 Douglas Dynamics are associated (or correlated) with Goodyear Tire. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Goodyear Tire Rubber has no effect on the direction of Douglas Dynamics i.e., Douglas Dynamics and Goodyear Tire go up and down completely randomly.

Pair Corralation between Douglas Dynamics and Goodyear Tire

Given the investment horizon of 90 days Douglas Dynamics is expected to under-perform the Goodyear Tire. But the stock apears to be less risky and, when comparing its historical volatility, Douglas Dynamics is 1.08 times less risky than Goodyear Tire. The stock trades about -0.05 of its potential returns per unit of risk. The Goodyear Tire Rubber is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  1,186  in Goodyear Tire Rubber on February 4, 2024 and sell it today you would earn a total of  48.00  from holding Goodyear Tire Rubber or generate 4.05% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	97.73%
Values	Daily Returns

Douglas Dynamics  vs.  Goodyear Tire Rubber

Douglas Dynamics

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Douglas Dynamics has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Douglas Dynamics is not utilizing all of its potentials. The current stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

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 latest unfluctuating performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Pair Trading with Douglas Dynamics and Goodyear Tire

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

The idea behind Douglas Dynamics and Goodyear Tire Rubber 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.