Correlation Between MERCEDES-BENZ GRP and Toyota

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

By analyzing existing cross correlation between MERCEDES BENZ GRP ADR14 and Toyota Motor, you can compare the effects of market volatilities on MERCEDES-BENZ GRP 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 MERCEDES-BENZ GRP with a short position of Toyota. Check out your portfolio center. Please also check ongoing floating volatility patterns of MERCEDES-BENZ GRP and Toyota.

Diversification Opportunities for MERCEDES-BENZ GRP and Toyota

-0.44

Correlation Coefficient

MERCEDES-BENZ GRP  Toyota

Very good diversification

The 3 months correlation between MERCEDES-BENZ and Toyota is -0.44. Overlapping area represents the amount of risk that can be diversified away by holding MERCEDES BENZ GRP ADR14 and Toyota Motor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Toyota Motor and MERCEDES-BENZ GRP 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 MERCEDES BENZ GRP ADR14 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 MERCEDES-BENZ GRP i.e., MERCEDES-BENZ GRP and Toyota go up and down completely randomly.

Pair Corralation between MERCEDES-BENZ GRP and Toyota

Assuming the 90 days trading horizon MERCEDES-BENZ GRP is expected to generate 1.84 times less return on investment than Toyota. In addition to that, MERCEDES-BENZ GRP is 1.25 times more volatile than Toyota Motor. It trades about 0.04 of its total potential returns per unit of risk. Toyota Motor is currently generating about 0.09 per unit of volatility. If you would invest  1,633  in Toyota Motor on September 22, 2024 and sell it today you would earn a total of  62.00  from holding Toyota Motor or generate 3.8% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	95.65%
Values	Daily Returns

MERCEDES BENZ GRP ADR14  vs.  Toyota Motor

MERCEDES BENZ GRP

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days MERCEDES BENZ GRP ADR14 has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable forward indicators, MERCEDES-BENZ GRP is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Toyota Motor

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Toyota Motor are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Toyota is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with MERCEDES-BENZ GRP and Toyota

The main advantage of trading using opposite MERCEDES-BENZ GRP and Toyota positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if MERCEDES-BENZ GRP 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 MERCEDES BENZ GRP ADR14 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.