Correlation Between Impax Environmental and Toyota

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

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

Diversification Opportunities for Impax Environmental and Toyota

0.27

Correlation Coefficient

Impax Environmental  Toyota

Modest diversification

The 3 months correlation between Impax and Toyota is 0.27. Overlapping area represents the amount of risk that can be diversified away by holding Impax Environmental Markets 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 Impax Environmental 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 Impax Environmental Markets 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 Impax Environmental i.e., Impax Environmental and Toyota go up and down completely randomly.

Pair Corralation between Impax Environmental and Toyota

Assuming the 90 days trading horizon Impax Environmental Markets is expected to generate 0.43 times more return on investment than Toyota. However, Impax Environmental Markets is 2.31 times less risky than Toyota. It trades about -0.1 of its potential returns per unit of risk. Toyota Motor Corp is currently generating about -0.07 per unit of risk. If you would invest  37,942  in Impax Environmental Markets on December 30, 2024 and sell it today you would lose (2,442) from holding Impax Environmental Markets or give up 6.44% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.46%
Values	Daily Returns

Impax Environmental Markets  vs.  Toyota Motor Corp

Impax Environmental

Risk-Adjusted Performance

Very Weak

Over the last 90 days Impax Environmental Markets has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, Impax Environmental is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Toyota Motor Corp

Risk-Adjusted Performance

Very Weak

Over the last 90 days Toyota Motor Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's technical and fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Pair Trading with Impax Environmental and Toyota

The main advantage of trading using opposite Impax Environmental and Toyota positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Impax Environmental 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 Impax Environmental Markets 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.