Correlation Between Toyota and Subaru Corp

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

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

Diversification Opportunities for Toyota and Subaru Corp

0.4

Correlation Coefficient

Toyota  Subaru Corp

Very weak diversification

The 3 months correlation between Toyota and Subaru is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding Toyota Motor and Subaru Corp ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Subaru Corp ADR 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 Subaru Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Subaru Corp ADR has no effect on the direction of Toyota i.e., Toyota and Subaru Corp go up and down completely randomly.

Pair Corralation between Toyota and Subaru Corp

Allowing for the 90-day total investment horizon Toyota Motor is expected to generate 0.89 times more return on investment than Subaru Corp. However, Toyota Motor is 1.12 times less risky than Subaru Corp. It trades about 0.05 of its potential returns per unit of risk. Subaru Corp ADR is currently generating about 0.03 per unit of risk. If you would invest  13,620  in Toyota Motor on October 3, 2024 and sell it today you would earn a total of  5,841  from holding Toyota Motor or generate 42.89% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	99.79%
Values	Daily Returns

Toyota Motor  vs.  Subaru Corp ADR

Toyota Motor

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Toyota Motor are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of very weak primary indicators, Toyota may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Subaru Corp ADR

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Subaru Corp ADR are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong technical indicators, Subaru Corp is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Toyota and Subaru Corp

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

The idea behind Toyota Motor and Subaru Corp ADR 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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.