Correlation Between Toyota and LiveWire

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

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

Diversification Opportunities for Toyota and LiveWire

0.12

Correlation Coefficient

Toyota  LiveWire

Average diversification

The 3 months correlation between Toyota and LiveWire is 0.12. Overlapping area represents the amount of risk that can be diversified away by holding Toyota Motor and LiveWire Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LiveWire Group 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 LiveWire. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LiveWire Group has no effect on the direction of Toyota i.e., Toyota and LiveWire go up and down completely randomly.

Pair Corralation between Toyota and LiveWire

Allowing for the 90-day total investment horizon Toyota Motor is expected to generate 0.38 times more return on investment than LiveWire. However, Toyota Motor is 2.67 times less risky than LiveWire. It trades about -0.05 of its potential returns per unit of risk. LiveWire Group is currently generating about -0.23 per unit of risk. If you would invest  19,566  in Toyota Motor on December 28, 2024 and sell it today you would lose (1,168) from holding Toyota Motor or give up 5.97% of portfolio value over 90 days.

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

Toyota Motor  vs.  LiveWire Group

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 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.

LiveWire Group

Risk-Adjusted Performance

Very Weak

Over the last 90 days LiveWire Group has generated negative risk-adjusted returns adding no value to investors with long positions. Even with unfluctuating performance in the last few months, the Stock's basic indicators remain relatively invariable which may send shares a bit higher in April 2025. The latest agitation may also be a sign of long-running up-swing for the enterprise retail investors.

Pair Trading with Toyota and LiveWire

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

The idea behind Toyota Motor and LiveWire Group 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.