Correlation Between Capital One and Toyota

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

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

Diversification Opportunities for Capital One and Toyota

-0.23

Correlation Coefficient

Capital One  Toyota

Very good diversification

The 3 months correlation between Capital and Toyota is -0.23. Overlapping area represents the amount of risk that can be diversified away by holding Capital One Financial and Toyota Motor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Toyota Motor and Capital One 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 Capital One Financial 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 Capital One i.e., Capital One and Toyota go up and down completely randomly.

Pair Corralation between Capital One and Toyota

Assuming the 90 days trading horizon Capital One Financial is expected to under-perform the Toyota. But the stock apears to be less risky and, when comparing its historical volatility, Capital One Financial is 12.69 times less risky than Toyota. The stock trades about -0.23 of its potential returns per unit of risk. The Toyota Motor is currently generating about 0.41 of returns per unit of risk over similar time horizon. If you would invest  365,000  in Toyota Motor on October 10, 2024 and sell it today you would earn a total of  36,000  from holding Toyota Motor or generate 9.86% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	26.32%
Values	Daily Returns

Capital One Financial  vs.  Toyota Motor

Capital One Financial

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Capital One Financial are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unfluctuating technical and fundamental indicators, Capital One showed solid returns over the last few months and may actually be approaching a breakup point.

Toyota Motor

Risk-Adjusted Performance

0 of 100

Solid

Over the last 90 days Toyota Motor has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly weak basic indicators, Toyota showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Capital One and Toyota

The main advantage of trading using opposite Capital One and Toyota positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Capital One 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 Capital One Financial 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.