Correlation Between Toyota and Universal Health

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

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

Diversification Opportunities for Toyota and Universal Health

0.62

Correlation Coefficient

Toyota  Universal Health

Poor diversification

The 3 months correlation between Toyota and Universal is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding Toyota Motor and Universal Health Services, in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Universal Health Ser 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 Universal Health. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Universal Health Ser has no effect on the direction of Toyota i.e., Toyota and Universal Health go up and down completely randomly.

Pair Corralation between Toyota and Universal Health

Assuming the 90 days trading horizon Toyota Motor is expected to generate 1.64 times more return on investment than Universal Health. However, Toyota is 1.64 times more volatile than Universal Health Services,. It trades about -0.08 of its potential returns per unit of risk. Universal Health Services, is currently generating about -0.14 per unit of risk. If you would invest  7,610  in Toyota Motor on December 26, 2024 and sell it today you would lose (715.00) from holding Toyota Motor or give up 9.4% of portfolio value over 90 days.

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

Toyota Motor  vs.  Universal Health Services,

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. Despite latest weak performance, the Stock's fundamental indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Universal Health Ser

Risk-Adjusted Performance

Very Weak

Over the last 90 days Universal Health Services, has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's technical indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Toyota and Universal Health

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

The idea behind Toyota Motor and Universal Health Services, 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.