Correlation Between Toro and Makita

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

By analyzing existing cross correlation between Toro Co and Makita, you can compare the effects of market volatilities on Toro and Makita 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 Toro with a short position of Makita. Check out your portfolio center. Please also check ongoing floating volatility patterns of Toro and Makita.

Diversification Opportunities for Toro and Makita

0.2

Correlation Coefficient

Toro  Makita

Modest diversification

The 3 months correlation between Toro and Makita is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding Toro Co and Makita in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Makita and Toro 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 Toro Co are associated (or correlated) with Makita. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Makita has no effect on the direction of Toro i.e., Toro and Makita go up and down completely randomly.

Pair Corralation between Toro and Makita

Assuming the 90 days horizon Toro Co is expected to generate 0.92 times more return on investment than Makita. However, Toro Co is 1.09 times less risky than Makita. It trades about 0.01 of its potential returns per unit of risk. Makita is currently generating about -0.05 per unit of risk. If you would invest  7,571  in Toro Co on October 10, 2024 and sell it today you would earn a total of  35.00  from holding Toro Co or generate 0.46% return on investment over 90 days.

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

Toro Co  vs.  Makita

Toro

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Toro Co are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Toro is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Makita

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Toro and Makita

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

The idea behind Toro Co and Makita 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 File Import module to quickly import all of your third-party portfolios from your local drive in csv format.