Correlation Between Dongfeng and Toyota

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

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

Diversification Opportunities for Dongfeng and Toyota

-0.28

Correlation Coefficient

Dongfeng  Toyota

Very good diversification

The 3 months correlation between Dongfeng and Toyota is -0.28. Overlapping area represents the amount of risk that can be diversified away by holding Dongfeng Group and Toyota Motor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Toyota Motor and Dongfeng 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 Dongfeng Group 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 Dongfeng i.e., Dongfeng and Toyota go up and down completely randomly.

Pair Corralation between Dongfeng and Toyota

Assuming the 90 days horizon Dongfeng Group is expected to generate 2.92 times more return on investment than Toyota. However, Dongfeng is 2.92 times more volatile than Toyota Motor. It trades about 0.22 of its potential returns per unit of risk. Toyota Motor is currently generating about 0.04 per unit of risk. If you would invest  48.00  in Dongfeng Group on September 21, 2024 and sell it today you would earn a total of  7.00  from holding Dongfeng Group or generate 14.58% return on investment over 90 days.

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

Dongfeng Group  vs.  Toyota Motor

Dongfeng Group

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Dongfeng Group are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Despite nearly abnormal technical and fundamental indicators, Dongfeng reported solid returns over the last few months and may actually be approaching a breakup point.

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 Dongfeng and Toyota

The main advantage of trading using opposite Dongfeng and Toyota positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dongfeng 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 Dongfeng Group 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.