Correlation Between Bayerische Motoren and Toyota

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

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

Diversification Opportunities for Bayerische Motoren and Toyota

0.64

Correlation Coefficient

Bayerische Motoren  Toyota

Poor diversification

The 3 months correlation between Bayerische and Toyota is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Bayerische Motoren Werke and Toyota Motor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Toyota Motor and Bayerische Motoren 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 Bayerische Motoren Werke are associated (or correlated) with Toyota. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Toyota Motor has no effect on the direction of Bayerische Motoren i.e., Bayerische Motoren and Toyota go up and down completely randomly.

Pair Corralation between Bayerische Motoren and Toyota

Assuming the 90 days horizon Bayerische Motoren Werke is expected to under-perform the Toyota. In addition to that, Bayerische Motoren is 1.54 times more volatile than Toyota Motor. It trades about -0.16 of its total potential returns per unit of risk. Toyota Motor is currently generating about -0.03 per unit of volatility. If you would invest  18,057  in Toyota Motor on August 24, 2024 and sell it today you would lose (719.00) from holding Toyota Motor or give up 3.98% of portfolio value over 90 days.

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

Bayerische Motoren Werke  vs.  Toyota Motor

Bayerische Motoren Werke

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Bayerische Motoren Werke has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in December 2024. The current disturbance may also be a sign of long term up-swing for the company investors.

Toyota Motor

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Toyota Motor has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy primary indicators, Toyota is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Bayerische Motoren and Toyota

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

The idea behind Bayerische Motoren Werke and Toyota Motor 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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.