Correlation Between Toyota and Gilead Sciences

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

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

Diversification Opportunities for Toyota and Gilead Sciences

0.52

Correlation Coefficient

Toyota  Gilead Sciences

Very weak diversification

The 3 months correlation between Toyota and Gilead is 0.52. Overlapping area represents the amount of risk that can be diversified away by holding Toyota Motor and Gilead Sciences in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gilead Sciences 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 Gilead Sciences. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Gilead Sciences has no effect on the direction of Toyota i.e., Toyota and Gilead Sciences go up and down completely randomly.

Pair Corralation between Toyota and Gilead Sciences

Assuming the 90 days trading horizon Toyota Motor is expected to under-perform the Gilead Sciences. In addition to that, Toyota is 1.55 times more volatile than Gilead Sciences. It trades about -0.11 of its total potential returns per unit of risk. Gilead Sciences is currently generating about 0.12 per unit of volatility. If you would invest  185,732  in Gilead Sciences on December 30, 2024 and sell it today you would earn a total of  24,268  from holding Gilead Sciences or generate 13.07% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	25.81%
Values	Daily Returns

Toyota Motor  vs.  Gilead Sciences

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. In spite of weak performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Gilead Sciences

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Gilead Sciences are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Gilead Sciences showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Toyota and Gilead Sciences

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

The idea behind Toyota Motor and Gilead Sciences 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 Anywhere module to track or share privately all of your investments from the convenience of any device.