Correlation Between Toyota and Nio

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

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

Diversification Opportunities for Toyota and Nio

-0.01

Correlation Coefficient

Toyota  Nio

Good diversification

The 3 months correlation between Toyota and Nio is -0.01. Overlapping area represents the amount of risk that can be diversified away by holding Toyota Motor and Nio Class A in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nio Class A 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 Nio. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nio Class A has no effect on the direction of Toyota i.e., Toyota and Nio go up and down completely randomly.

Pair Corralation between Toyota and Nio

Allowing for the 90-day total investment horizon Toyota Motor is expected to under-perform the Nio. But the stock apears to be less risky and, when comparing its historical volatility, Toyota Motor is 3.47 times less risky than Nio. The stock trades about -0.09 of its potential returns per unit of risk. The Nio Class A is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  415.00  in Nio Class A on September 1, 2024 and sell it today you would earn a total of  33.00  from holding Nio Class A or generate 7.95% return on investment over 90 days.

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

Toyota Motor  vs.  Nio Class A

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 unfluctuating 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.

Nio Class A

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Nio Class A are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of very inconsistent forward indicators, Nio displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Toyota and Nio

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

The idea behind Toyota Motor and Nio Class A 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.