Correlation Between Ferrari NV and Toyota

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

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

Diversification Opportunities for Ferrari NV and Toyota

-0.41

Correlation Coefficient

Ferrari NV  Toyota

Very good diversification

The 3 months correlation between Ferrari and Toyota is -0.41. Overlapping area represents the amount of risk that can be diversified away by holding Ferrari NV and Toyota Motor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Toyota Motor and Ferrari NV 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 Ferrari NV 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 Ferrari NV i.e., Ferrari NV and Toyota go up and down completely randomly.

Pair Corralation between Ferrari NV and Toyota

Given the investment horizon of 90 days Ferrari NV is expected to generate 1.1 times more return on investment than Toyota. However, Ferrari NV is 1.1 times more volatile than Toyota Motor. It trades about 0.01 of its potential returns per unit of risk. Toyota Motor is currently generating about -0.05 per unit of risk. If you would invest  42,677  in Ferrari NV on December 29, 2024 and sell it today you would earn a total of  5.00  from holding Ferrari NV or generate 0.01% return on investment over 90 days.

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

Ferrari NV  vs.  Toyota Motor

Ferrari NV

Risk-Adjusted Performance

Very Weak

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

Toyota Motor

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Ferrari NV and Toyota

The main advantage of trading using opposite Ferrari NV and Toyota positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ferrari NV 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 Ferrari NV 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.

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 Sync Your Broker module to sync your existing holdings, watchlists, positions or portfolios from thousands of online brokerage services, banks, investment account aggregators and robo-advisors..