Correlation Between DG Innovate and Toyota

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

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

Diversification Opportunities for DG Innovate and Toyota

0.31

Correlation Coefficient

DG Innovate  Toyota

Weak diversification

The 3 months correlation between DGI and Toyota is 0.31. Overlapping area represents the amount of risk that can be diversified away by holding DG Innovate PLC and Toyota Motor Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Toyota Motor Corp and DG Innovate 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 DG Innovate PLC 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 Corp has no effect on the direction of DG Innovate i.e., DG Innovate and Toyota go up and down completely randomly.

Pair Corralation between DG Innovate and Toyota

Assuming the 90 days trading horizon DG Innovate PLC is expected to generate 5.5 times more return on investment than Toyota. However, DG Innovate is 5.5 times more volatile than Toyota Motor Corp. It trades about 0.05 of its potential returns per unit of risk. Toyota Motor Corp is currently generating about -0.03 per unit of risk. If you would invest  8.00  in DG Innovate PLC on September 18, 2024 and sell it today you would earn a total of  0.25  from holding DG Innovate PLC or generate 3.13% return on investment over 90 days.

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

DG Innovate PLC  vs.  Toyota Motor Corp

DG Innovate PLC

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in DG Innovate PLC are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady technical and fundamental indicators, DG Innovate exhibited solid returns over the last few months and may actually be approaching a breakup point.

Toyota Motor Corp

Risk-Adjusted Performance

6 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Toyota Motor Corp are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain technical and fundamental indicators, Toyota may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with DG Innovate and Toyota

The main advantage of trading using opposite DG Innovate and Toyota positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if DG Innovate 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 DG Innovate PLC and Toyota Motor 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.