Correlation Between Monks Investment and Toyota

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

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

Diversification Opportunities for Monks Investment and Toyota

0.23

Correlation Coefficient

Monks Investment  Toyota

Modest diversification

The 3 months correlation between Monks and Toyota is 0.23. Overlapping area represents the amount of risk that can be diversified away by holding Monks Investment Trust 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 Monks Investment 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 Monks Investment Trust 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 Monks Investment i.e., Monks Investment and Toyota go up and down completely randomly.

Pair Corralation between Monks Investment and Toyota

Assuming the 90 days trading horizon Monks Investment is expected to generate 9.32 times less return on investment than Toyota. But when comparing it to its historical volatility, Monks Investment Trust is 3.44 times less risky than Toyota. It trades about 0.08 of its potential returns per unit of risk. Toyota Motor Corp is currently generating about 0.23 of returns per unit of risk over similar time horizon. If you would invest  262,899  in Toyota Motor Corp on October 9, 2024 and sell it today you would earn a total of  38,201  from holding Toyota Motor Corp or generate 14.53% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	94.74%
Values	Daily Returns

Monks Investment Trust  vs.  Toyota Motor Corp

Monks Investment Trust

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Monks Investment Trust are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady basic indicators, Monks Investment may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Toyota Motor Corp

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Toyota Motor Corp are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady technical and fundamental indicators, Toyota exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Monks Investment and Toyota

The main advantage of trading using opposite Monks Investment and Toyota positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Monks Investment 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 Monks Investment Trust 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.