Correlation Between Toyota and Mullen Automotive

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

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

Diversification Opportunities for Toyota and Mullen Automotive

0.18

Correlation Coefficient

Toyota  Mullen Automotive

Average diversification

The 3 months correlation between Toyota and Mullen is 0.18. Overlapping area represents the amount of risk that can be diversified away by holding Toyota Motor and Mullen Automotive in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mullen Automotive 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 Mullen Automotive. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Mullen Automotive has no effect on the direction of Toyota i.e., Toyota and Mullen Automotive go up and down completely randomly.

Pair Corralation between Toyota and Mullen Automotive

Allowing for the 90-day total investment horizon Toyota Motor is expected to generate 0.12 times more return on investment than Mullen Automotive. However, Toyota Motor is 8.18 times less risky than Mullen Automotive. It trades about 0.05 of its potential returns per unit of risk. Mullen Automotive is currently generating about -0.15 per unit of risk. If you would invest  13,009  in Toyota Motor on September 19, 2024 and sell it today you would earn a total of  4,353  from holding Toyota Motor or generate 33.46% return on investment over 90 days.

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

Toyota Motor  vs.  Mullen Automotive

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.

Mullen Automotive

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Mullen Automotive has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Stock's essential indicators remain very healthy which may send shares a bit higher in January 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with Toyota and Mullen Automotive

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

The idea behind Toyota Motor and Mullen Automotive 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.