Correlation Between Toyota and Suzuki

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

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

Diversification Opportunities for Toyota and Suzuki

0.37

Correlation Coefficient

Toyota  Suzuki

Weak diversification

The 3 months correlation between Toyota and Suzuki is 0.37. Overlapping area represents the amount of risk that can be diversified away by holding Toyota Motor and Suzuki Motor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Suzuki 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 Suzuki. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Suzuki Motor has no effect on the direction of Toyota i.e., Toyota and Suzuki go up and down completely randomly.

Pair Corralation between Toyota and Suzuki

Allowing for the 90-day total investment horizon Toyota is expected to generate 20.46 times less return on investment than Suzuki. But when comparing it to its historical volatility, Toyota Motor is 2.21 times less risky than Suzuki. It trades about 0.01 of its potential returns per unit of risk. Suzuki Motor is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  1,066  in Suzuki Motor on September 18, 2024 and sell it today you would earn a total of  121.00  from holding Suzuki Motor or generate 11.35% return on investment over 90 days.

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

Toyota Motor  vs.  Suzuki 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.

Suzuki Motor

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Suzuki Motor are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak primary indicators, Suzuki reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Toyota and Suzuki

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

The idea behind Toyota Motor and Suzuki 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.