Correlation Between Tesla and Toyota

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

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

Diversification Opportunities for Tesla and Toyota

0.68

Correlation Coefficient

Tesla  Toyota

Poor diversification

The 3 months correlation between Tesla and Toyota is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Tesla Inc and Toyota Motor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Toyota Motor and Tesla 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 Tesla Inc 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 Tesla i.e., Tesla and Toyota go up and down completely randomly.

Pair Corralation between Tesla and Toyota

Assuming the 90 days horizon Tesla Inc is expected to generate 1.79 times more return on investment than Toyota. However, Tesla is 1.79 times more volatile than Toyota Motor. It trades about 0.36 of its potential returns per unit of risk. Toyota Motor is currently generating about 0.09 per unit of risk. If you would invest  32,515  in Tesla Inc on September 22, 2024 and sell it today you would earn a total of  9,365  from holding Tesla Inc or generate 28.8% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	95.65%
Values	Daily Returns

Tesla Inc  vs.  Toyota Motor

Tesla Inc

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Tesla Inc are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Tesla reported solid returns over the last few months and may actually be approaching a breakup point.

Toyota Motor

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Toyota Motor are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Toyota is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Tesla and Toyota

The main advantage of trading using opposite Tesla and Toyota positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Tesla 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 Tesla Inc 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.