Correlation Between Toyota and Aftermaster

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

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

Diversification Opportunities for Toyota and Aftermaster

0.22

Correlation Coefficient

Toyota  Aftermaster

Modest diversification

The 3 months correlation between Toyota and Aftermaster is 0.22. Overlapping area represents the amount of risk that can be diversified away by holding Toyota Motor and Aftermaster in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aftermaster and Toyota 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 Toyota Motor are associated (or correlated) with Aftermaster. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aftermaster has no effect on the direction of Toyota i.e., Toyota and Aftermaster go up and down completely randomly.

Pair Corralation between Toyota and Aftermaster

Allowing for the 90-day total investment horizon Toyota Motor is expected to generate 0.15 times more return on investment than Aftermaster. However, Toyota Motor is 6.84 times less risky than Aftermaster. It trades about -0.07 of its potential returns per unit of risk. Aftermaster is currently generating about -0.13 per unit of risk. If you would invest  19,566  in Toyota Motor on December 29, 2024 and sell it today you would lose (1,659) from holding Toyota Motor or give up 8.48% of portfolio value over 90 days.

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

Toyota Motor  vs.  Aftermaster

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 latest weak performance, the Stock's primary indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Aftermaster

Risk-Adjusted Performance

Very Weak

Over the last 90 days Aftermaster has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in April 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with Toyota and Aftermaster

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

The idea behind Toyota Motor and Aftermaster 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.