Correlation Between Toyota and BYD Company

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

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

Diversification Opportunities for Toyota and BYD Company

-0.42

Correlation Coefficient

Toyota  BYD Company

Very good diversification

The 3 months correlation between Toyota and BYD is -0.42. Overlapping area represents the amount of risk that can be diversified away by holding Toyota Motor and BYD Company Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BYD Limited 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 BYD Company. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BYD Limited has no effect on the direction of Toyota i.e., Toyota and BYD Company go up and down completely randomly.

Pair Corralation between Toyota and BYD Company

Allowing for the 90-day total investment horizon Toyota Motor is expected to generate 0.64 times more return on investment than BYD Company. However, Toyota Motor is 1.56 times less risky than BYD Company. It trades about -0.04 of its potential returns per unit of risk. BYD Company Limited is currently generating about -0.19 per unit of risk. If you would invest  17,283  in Toyota Motor on September 2, 2024 and sell it today you would lose (220.00) from holding Toyota Motor or give up 1.27% of portfolio value over 90 days.

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

Toyota Motor  vs.  BYD Company Limited

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 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.

BYD Limited

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in BYD Company Limited are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly inconsistent fundamental indicators, BYD Company may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Toyota and BYD Company

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

The idea behind Toyota Motor and BYD Company Limited 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 Dashboard module to portfolio dashboard that provides centralized access to all your investments.