Correlation Between Goodyear Tire and Lear

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

Diversification Opportunities for Goodyear Tire and Lear

-0.48

Correlation Coefficient

Goodyear Tire  Lear

Very good diversification

The 3 months correlation between Goodyear and Lear is -0.48. Overlapping area represents the amount of risk that can be diversified away by holding Goodyear Tire Rubber and Lear Corp. in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lear 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 Lear. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lear has no effect on the direction of Goodyear Tire i.e., Goodyear Tire and Lear go up and down completely randomly.

Pair Corralation between Goodyear Tire and Lear

Allowing for the 90-day total investment horizon Goodyear Tire Rubber is expected to generate 1.8 times more return on investment than Lear. However, Goodyear Tire is 1.8 times more volatile than Lear Corporation. It trades about -0.02 of its potential returns per unit of risk. Lear Corporation is currently generating about -0.06 per unit of risk. If you would invest  1,153  in Goodyear Tire Rubber on September 15, 2024 and sell it today you would lose (146.00) from holding Goodyear Tire Rubber or give up 12.66% of portfolio value over 90 days.

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

Goodyear Tire Rubber  vs.  Lear Corp.

Goodyear Tire Rubber

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Goodyear Tire Rubber are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unfluctuating basic indicators, Goodyear Tire unveiled solid returns over the last few months and may actually be approaching a breakup point.

Lear

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Lear Corporation has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong technical and fundamental indicators, Lear is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Goodyear Tire and Lear

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

The idea behind Goodyear Tire Rubber and Lear Corporation 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.