Correlation Between Southern Copper and Toyota

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

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

Diversification Opportunities for Southern Copper and Toyota

0.4

Correlation Coefficient

Southern Copper  Toyota

Very weak diversification

The 3 months correlation between Southern and Toyota is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding Southern Copper and Toyota Motor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Toyota Motor and Southern Copper 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 Southern Copper 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 Southern Copper i.e., Southern Copper and Toyota go up and down completely randomly.

Pair Corralation between Southern Copper and Toyota

Assuming the 90 days trading horizon Southern Copper is expected to generate 3.89 times less return on investment than Toyota. But when comparing it to its historical volatility, Southern Copper is 1.88 times less risky than Toyota. It trades about 0.06 of its potential returns per unit of risk. Toyota Motor is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  246,746  in Toyota Motor on October 26, 2024 and sell it today you would earn a total of  130,054  from holding Toyota Motor or generate 52.71% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	22.06%
Values	Daily Returns

Southern Copper  vs.  Toyota Motor

Southern Copper

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Southern Copper has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, Southern Copper is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Toyota Motor

Risk-Adjusted Performance

0 of 100

Strong

Over the last 90 days Toyota Motor has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly unfluctuating basic indicators, Toyota showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Southern Copper and Toyota

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

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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 Equity Valuation module to check real value of public entities based on technical and fundamental data.