Correlation Between Bridgestone and Essentra Plc

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

By analyzing existing cross correlation between Bridgestone and Essentra plc, you can compare the effects of market volatilities on Bridgestone and Essentra Plc 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 Bridgestone with a short position of Essentra Plc. Check out your portfolio center. Please also check ongoing floating volatility patterns of Bridgestone and Essentra Plc.

Diversification Opportunities for Bridgestone and Essentra Plc

-0.4

Correlation Coefficient

Bridgestone  Essentra Plc

Very good diversification

The 3 months correlation between Bridgestone and Essentra is -0.4. Overlapping area represents the amount of risk that can be diversified away by holding Bridgestone and Essentra plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Essentra plc and Bridgestone 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 Bridgestone are associated (or correlated) with Essentra Plc. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Essentra plc has no effect on the direction of Bridgestone i.e., Bridgestone and Essentra Plc go up and down completely randomly.

Pair Corralation between Bridgestone and Essentra Plc

Assuming the 90 days horizon Bridgestone is expected to under-perform the Essentra Plc. But the stock apears to be less risky and, when comparing its historical volatility, Bridgestone is 1.77 times less risky than Essentra Plc. The stock trades about 0.0 of its potential returns per unit of risk. The Essentra plc is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  103.00  in Essentra plc on April 22, 2025 and sell it today you would earn a total of  18.00  from holding Essentra plc or generate 17.48% return on investment over 90 days.

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

Bridgestone  vs.  Essentra plc

Bridgestone

Risk-Adjusted Performance

Very Weak

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

Essentra plc

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Essentra plc are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Essentra Plc reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Bridgestone and Essentra Plc

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

The idea behind Bridgestone and Essentra plc 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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.