Correlation Between Stellantis and Toyota Industries

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

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

Diversification Opportunities for Stellantis and Toyota Industries

0.38

Correlation Coefficient

Stellantis  Toyota Industries

Weak diversification

The 3 months correlation between Stellantis and Toyota is 0.38. Overlapping area represents the amount of risk that can be diversified away by holding Stellantis NV and Toyota Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Toyota Industries and Stellantis 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 Stellantis NV are associated (or correlated) with Toyota Industries. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Toyota Industries has no effect on the direction of Stellantis i.e., Stellantis and Toyota Industries go up and down completely randomly.

Pair Corralation between Stellantis and Toyota Industries

Given the investment horizon of 90 days Stellantis NV is expected to under-perform the Toyota Industries. In addition to that, Stellantis is 1.12 times more volatile than Toyota Industries. It trades about -0.03 of its total potential returns per unit of risk. Toyota Industries is currently generating about -0.01 per unit of volatility. If you would invest  7,516  in Toyota Industries on September 17, 2024 and sell it today you would lose (244.00) from holding Toyota Industries or give up 3.25% of portfolio value over 90 days.

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

Stellantis NV  vs.  Toyota Industries

Stellantis NV

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Stellantis NV has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong essential indicators, Stellantis is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Toyota Industries

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Stellantis and Toyota Industries

The main advantage of trading using opposite Stellantis and Toyota Industries positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Stellantis position performs unexpectedly, Toyota Industries 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 Industries will offset losses from the drop in Toyota Industries' long position.

The idea behind Stellantis NV and Toyota Industries 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.