Correlation Between Toyota and Aston Martin

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

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

Diversification Opportunities for Toyota and Aston Martin

0.65

Correlation Coefficient

Toyota  Aston Martin

Poor diversification

The 3 months correlation between Toyota and Aston is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Toyota Motor and Aston Martin Lagonda in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aston Martin Lagonda 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 Aston Martin. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aston Martin Lagonda has no effect on the direction of Toyota i.e., Toyota and Aston Martin go up and down completely randomly.

Pair Corralation between Toyota and Aston Martin

Allowing for the 90-day total investment horizon Toyota Motor is expected to generate 0.22 times more return on investment than Aston Martin. However, Toyota Motor is 4.52 times less risky than Aston Martin. It trades about -0.09 of its potential returns per unit of risk. Aston Martin Lagonda is currently generating about -0.04 per unit of risk. If you would invest  18,615  in Toyota Motor on September 1, 2024 and sell it today you would lose (1,552) from holding Toyota Motor or give up 8.34% of portfolio value over 90 days.

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

Toyota Motor  vs.  Aston Martin Lagonda

Toyota Motor

Risk-Adjusted Performance

0 of 100

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 unfluctuating 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.

Aston Martin Lagonda

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Aston Martin Lagonda has generated negative risk-adjusted returns adding no value to investors with long positions. Despite abnormal performance in the last few months, the Stock's fundamental indicators remain nearly stable which may send shares a bit higher in December 2024. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Toyota and Aston Martin

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

The idea behind Toyota Motor and Aston Martin Lagonda 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.