Correlation Between Toyota and Uber Technologies

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

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

Diversification Opportunities for Toyota and Uber Technologies

-0.48

Correlation Coefficient

Toyota  Uber Technologies

Very good diversification

The 3 months correlation between Toyota and Uber is -0.48. Overlapping area represents the amount of risk that can be diversified away by holding Toyota Motor and Uber Technologies in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Uber Technologies 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 Uber Technologies. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Uber Technologies has no effect on the direction of Toyota i.e., Toyota and Uber Technologies go up and down completely randomly.

Pair Corralation between Toyota and Uber Technologies

Assuming the 90 days trading horizon Toyota Motor is expected to under-perform the Uber Technologies. But the stock apears to be less risky and, when comparing its historical volatility, Toyota Motor is 1.73 times less risky than Uber Technologies. The stock trades about -0.06 of its potential returns per unit of risk. The Uber Technologies is currently generating about 0.21 of returns per unit of risk over similar time horizon. If you would invest  9,910  in Uber Technologies on November 29, 2024 and sell it today you would earn a total of  1,689  from holding Uber Technologies or generate 17.04% return on investment over 90 days.

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

Toyota Motor  vs.  Uber Technologies

Toyota Motor

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Toyota Motor are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong fundamental indicators, Toyota is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Uber Technologies

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Uber Technologies are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak fundamental drivers, Uber Technologies may actually be approaching a critical reversion point that can send shares even higher in March 2025.

Pair Trading with Toyota and Uber Technologies

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

The idea behind Toyota Motor and Uber Technologies 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.