Correlation Between Toyota and Agilent Technologies

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

Diversification Opportunities for Toyota and Agilent Technologies

-0.29

Correlation Coefficient

Toyota  Agilent Technologies

Very good diversification

The 3 months correlation between Toyota and Agilent is -0.29. Overlapping area represents the amount of risk that can be diversified away by holding Toyota Motor Corp and Agilent Technologies in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Agilent Technologies 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 Agilent Technologies. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Agilent Technologies has no effect on the direction of Toyota i.e., Toyota and Agilent Technologies go up and down completely randomly.

Pair Corralation between Toyota and Agilent Technologies

Assuming the 90 days trading horizon Toyota Motor Corp is expected to generate 2.43 times more return on investment than Agilent Technologies. However, Toyota is 2.43 times more volatile than Agilent Technologies. It trades about 0.32 of its potential returns per unit of risk. Agilent Technologies is currently generating about -0.05 per unit of risk. If you would invest  263,200  in Toyota Motor Corp on October 6, 2024 and sell it today you would earn a total of  51,400  from holding Toyota Motor Corp or generate 19.53% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.0%
Values	Daily Returns

Toyota Motor Corp  vs.  Agilent Technologies

Toyota Motor Corp

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Toyota Motor Corp are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain technical and fundamental indicators, Toyota exhibited solid returns over the last few months and may actually be approaching a breakup point.

Agilent Technologies

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Agilent Technologies has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Agilent Technologies 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 Agilent Technologies

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

The idea behind Toyota Motor Corp and Agilent Technologies 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.