Correlation Between Toyota and Toyota Industries

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

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

Diversification Opportunities for Toyota and Toyota Industries

0.82

Correlation Coefficient

Toyota  Toyota Industries

Very poor diversification

The 3 months correlation between Toyota and Toyota is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Toyota Motor Corp and Toyota Industries Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Toyota Industries Corp and Toyota 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 Toyota Motor Corp are associated (or correlated) with Toyota Industries. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Toyota Industries Corp has no effect on the direction of Toyota i.e., Toyota and Toyota Industries go up and down completely randomly.

Pair Corralation between Toyota and Toyota Industries

Assuming the 90 days horizon Toyota Motor Corp is expected to generate 0.68 times more return on investment than Toyota Industries. However, Toyota Motor Corp is 1.48 times less risky than Toyota Industries. It trades about -0.22 of its potential returns per unit of risk. Toyota Industries Corp is currently generating about -0.19 per unit of risk. If you would invest  2,420  in Toyota Motor Corp on January 30, 2024 and sell it today you would lose (152.00) from holding Toyota Motor Corp or give up 6.28% of portfolio value over 90 days.

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

Toyota Motor Corp  vs.  Toyota Industries Corp

Toyota Motor Corp

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Toyota Motor Corp are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady basic indicators, Toyota reported solid returns over the last few months and may actually be approaching a breakup point.

Toyota Industries Corp

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Toyota Industries Corp are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak fundamental indicators, Toyota Industries reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Toyota and Toyota Industries

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

The idea behind Toyota Motor Corp and Toyota Industries Corp 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.