Correlation Between Toyota and British American

Can any of the company-specific risk be diversified away by investing in both Toyota and British American 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 British American 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 British American Tobacco, you can compare the effects of market volatilities on Toyota and British American 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 British American. Check out your portfolio center. Please also check ongoing floating volatility patterns of Toyota and British American.

Diversification Opportunities for Toyota and British American

-0.51

Correlation Coefficient

Toyota  British American

Excellent diversification

The 3 months correlation between Toyota and British is -0.51. Overlapping area represents the amount of risk that can be diversified away by holding Toyota Motor Corp and British American Tobacco in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on British American Tobacco 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 British American. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of British American Tobacco has no effect on the direction of Toyota i.e., Toyota and British American go up and down completely randomly.

Pair Corralation between Toyota and British American

Assuming the 90 days trading horizon Toyota Motor Corp is expected to under-perform the British American. In addition to that, Toyota is 1.38 times more volatile than British American Tobacco. It trades about -0.07 of its total potential returns per unit of risk. British American Tobacco is currently generating about 0.12 per unit of volatility. If you would invest  3,599  in British American Tobacco on December 29, 2024 and sell it today you would earn a total of  460.00  from holding British American Tobacco or generate 12.78% return on investment over 90 days.

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

Toyota Motor Corp  vs.  British American Tobacco

Toyota Motor Corp

Risk-Adjusted Performance

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 latest unsteady performance, the Stock's technical and fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

British American Tobacco

Risk-Adjusted Performance

Good

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

Pair Trading with Toyota and British American

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

The idea behind Toyota Motor Corp and British American Tobacco 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.

Check out your portfolio center.

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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.