Correlation Between Samsung Electronics and Toyota

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

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

Diversification Opportunities for Samsung Electronics and Toyota

-0.48

Correlation Coefficient

Samsung Electronics  Toyota

Very good diversification

The 3 months correlation between Samsung and Toyota is -0.48. Overlapping area represents the amount of risk that can be diversified away by holding Samsung Electronics Co 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 Samsung Electronics 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 Samsung Electronics Co 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 Samsung Electronics i.e., Samsung Electronics and Toyota go up and down completely randomly.

Pair Corralation between Samsung Electronics and Toyota

Assuming the 90 days trading horizon Samsung Electronics Co is expected to under-perform the Toyota. But the stock apears to be less risky and, when comparing its historical volatility, Samsung Electronics Co is 1.16 times less risky than Toyota. The stock trades about -0.06 of its potential returns per unit of risk. The Toyota Motor Corp is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  273,050  in Toyota Motor Corp on November 19, 2024 and sell it today you would earn a total of  6,950  from holding Toyota Motor Corp or generate 2.55% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	98.39%
Values	Daily Returns

Samsung Electronics Co  vs.  Toyota Motor Corp

Samsung Electronics

Risk-Adjusted Performance

Very Weak

Over the last 90 days Samsung Electronics Co has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Toyota Motor Corp

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Toyota Motor Corp are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound technical and fundamental indicators, Toyota is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Samsung Electronics and Toyota

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

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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.