Correlation Between Toyota and Great Wall

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

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

Diversification Opportunities for Toyota and Great Wall

-0.4

Correlation Coefficient

Toyota  Great Wall

Very good diversification

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

Pair Corralation between Toyota and Great Wall

Allowing for the 90-day total investment horizon Toyota Motor is expected to under-perform the Great Wall. But the stock apears to be less risky and, when comparing its historical volatility, Toyota Motor is 3.02 times less risky than Great Wall. The stock trades about -0.03 of its potential returns per unit of risk. The Great Wall Motor is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  125.00  in Great Wall Motor on September 5, 2024 and sell it today you would earn a total of  39.00  from holding Great Wall Motor or generate 31.2% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	98.44%
Values	Daily Returns

Toyota Motor  vs.  Great Wall Motor

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 very healthy primary indicators, Toyota is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Great Wall Motor

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Great Wall Motor are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile essential indicators, Great Wall reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Toyota and Great Wall

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

The idea behind Toyota Motor and Great Wall 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.

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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.