Correlation Between Plastic Omnium and Toyota

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

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

Diversification Opportunities for Plastic Omnium and Toyota

-0.04

Correlation Coefficient

Plastic Omnium  Toyota

Good diversification

The 3 months correlation between Plastic and Toyota is -0.04. Overlapping area represents the amount of risk that can be diversified away by holding Plastic Omnium and Toyota Motor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Toyota Motor and Plastic Omnium 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 Plastic Omnium 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 Plastic Omnium i.e., Plastic Omnium and Toyota go up and down completely randomly.

Pair Corralation between Plastic Omnium and Toyota

Assuming the 90 days trading horizon Plastic Omnium is expected to generate 1.46 times more return on investment than Toyota. However, Plastic Omnium is 1.46 times more volatile than Toyota Motor. It trades about 0.03 of its potential returns per unit of risk. Toyota Motor is currently generating about 0.02 per unit of risk. If you would invest  965.00  in Plastic Omnium on December 22, 2024 and sell it today you would earn a total of  29.00  from holding Plastic Omnium or generate 3.01% return on investment over 90 days.

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

Plastic Omnium  vs.  Toyota Motor

Plastic Omnium

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Plastic Omnium are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Plastic Omnium is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Toyota Motor

Risk-Adjusted Performance

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 primary indicators, Toyota is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Plastic Omnium and Toyota

The main advantage of trading using opposite Plastic Omnium and Toyota positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Plastic Omnium 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 Plastic Omnium 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .