Correlation Between Toyota and BYD Company

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

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

Diversification Opportunities for Toyota and BYD Company

-0.38

Correlation Coefficient

Toyota  BYD Company

Very good diversification

The 3 months correlation between Toyota and BYD is -0.38. Overlapping area represents the amount of risk that can be diversified away by holding Toyota Motor and BYD Company Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BYD Limited 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 BYD Company. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BYD Limited has no effect on the direction of Toyota i.e., Toyota and BYD Company go up and down completely randomly.

Pair Corralation between Toyota and BYD Company

Assuming the 90 days horizon Toyota is expected to generate 1.01 times less return on investment than BYD Company. But when comparing it to its historical volatility, Toyota Motor is 1.55 times less risky than BYD Company. It trades about 0.09 of its potential returns per unit of risk. BYD Company Limited is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  6,350  in BYD Company Limited on September 22, 2024 and sell it today you would earn a total of  200.00  from holding BYD Company Limited or generate 3.15% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.65%
Values	Daily Returns

Toyota Motor  vs.  BYD Company Limited

Toyota Motor

Risk-Adjusted Performance

1 of 100

Weak

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

BYD Limited

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in BYD Company Limited are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, BYD Company reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Toyota and BYD Company

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

The idea behind Toyota Motor and BYD Company Limited 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.