Correlation Between Toyota and FuelCell Energy

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

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

Diversification Opportunities for Toyota and FuelCell Energy

-0.6

Correlation Coefficient

Toyota  FuelCell Energy

Excellent diversification

The 3 months correlation between Toyota and FuelCell is -0.6. Overlapping area represents the amount of risk that can be diversified away by holding Toyota Motor Corp and FuelCell Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FuelCell Energy 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 Corp are associated (or correlated) with FuelCell Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of FuelCell Energy has no effect on the direction of Toyota i.e., Toyota and FuelCell Energy go up and down completely randomly.

Pair Corralation between Toyota and FuelCell Energy

Assuming the 90 days trading horizon Toyota Motor Corp is expected to under-perform the FuelCell Energy. But the stock apears to be less risky and, when comparing its historical volatility, Toyota Motor Corp is 3.76 times less risky than FuelCell Energy. The stock trades about -0.03 of its potential returns per unit of risk. The FuelCell Energy is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  1,268  in FuelCell Energy on September 5, 2024 and sell it today you would lose (198.00) from holding FuelCell Energy or give up 15.62% of portfolio value over 90 days.

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

Toyota Motor Corp  vs.  FuelCell Energy

Toyota Motor Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Toyota Motor Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, Toyota is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

FuelCell Energy

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days FuelCell Energy has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, FuelCell Energy is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Toyota and FuelCell Energy

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

The idea behind Toyota Motor Corp and FuelCell Energy 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 Sync Your Broker module to sync your existing holdings, watchlists, positions or portfolios from thousands of online brokerage services, banks, investment account aggregators and robo-advisors..