Correlation Between GM and Toyota Industries

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

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

Diversification Opportunities for GM and Toyota Industries

-0.12

Correlation Coefficient

GM  Toyota Industries

Good diversification

The 3 months correlation between GM and Toyota is -0.12. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Toyota Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Toyota Industries and GM 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 General Motors are associated (or correlated) with Toyota Industries. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Toyota Industries has no effect on the direction of GM i.e., GM and Toyota Industries go up and down completely randomly.

Pair Corralation between GM and Toyota Industries

Allowing for the 90-day total investment horizon General Motors is expected to under-perform the Toyota Industries. But the stock apears to be less risky and, when comparing its historical volatility, General Motors is 1.54 times less risky than Toyota Industries. The stock trades about -0.08 of its potential returns per unit of risk. The Toyota Industries is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  7,490  in Toyota Industries on October 22, 2024 and sell it today you would earn a total of  229.00  from holding Toyota Industries or generate 3.06% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	94.74%
Values	Daily Returns

General Motors  vs.  Toyota Industries

General Motors

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days General Motors has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy primary indicators, GM is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Toyota Industries

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Toyota Industries are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of fairly fragile fundamental indicators, Toyota Industries may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with GM and Toyota Industries

The main advantage of trading using opposite GM and Toyota Industries positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, Toyota Industries 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 Industries will offset losses from the drop in Toyota Industries' long position.

The idea behind General Motors and Toyota Industries 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 Global Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.