Correlation Between Ford and Toyota
Can any of the company-specific risk be diversified away by investing in both Ford 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 Ford and Toyota into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Ford Motor and Toyota Motor, you can compare the effects of market volatilities on Ford 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 Ford with a short position of Toyota. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ford and Toyota.
Diversification Opportunities for Ford and Toyota
Good diversification
The 3 months correlation between Ford and Toyota is -0.16. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and Toyota Motor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Toyota Motor and Ford 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 Ford Motor 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 Ford i.e., Ford and Toyota go up and down completely randomly.
Pair Corralation between Ford and Toyota
Given the investment horizon of 90 days Ford Motor is expected to generate 2.49 times more return on investment than Toyota. However, Ford is 2.49 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 -0.22 per unit of risk. If you would invest 19,881 in Ford Motor on December 5, 2024 and sell it today you would lose (926.00) from holding Ford Motor or give up 4.66% of portfolio value over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Against |
Strength | Insignificant |
Accuracy | 26.83% |
Values | Daily Returns |
Ford Motor vs. Toyota Motor
Performance |
Timeline |
Ford Motor |
Toyota Motor |
Risk-Adjusted Performance
OK
Weak | Strong |
Ford and Toyota Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Ford and Toyota
The main advantage of trading using opposite Ford and Toyota positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ford 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.Ford vs. Deutsche Bank Aktiengesellschaft | Ford vs. Ameriprise Financial | Ford vs. Steel Dynamics | Ford vs. Desarrolladora Homex SAB |
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Check out your portfolio center.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 Commodity Directory module to find actively traded commodities issued by global exchanges.
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