Correlation Between Toyota and Freddie Mac

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

Diversification Opportunities for Toyota and Freddie Mac

-0.32

Correlation Coefficient

Toyota  Freddie Mac

Very good diversification

The 3 months correlation between Toyota and Freddie is -0.32. Overlapping area represents the amount of risk that can be diversified away by holding Toyota Motor Corp and Freddie Mac in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Freddie Mac 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 Freddie Mac. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Freddie Mac has no effect on the direction of Toyota i.e., Toyota and Freddie Mac go up and down completely randomly.

Pair Corralation between Toyota and Freddie Mac

Assuming the 90 days trading horizon Toyota is expected to generate 22.31 times less return on investment than Freddie Mac. But when comparing it to its historical volatility, Toyota Motor Corp is 4.07 times less risky than Freddie Mac. It trades about 0.03 of its potential returns per unit of risk. Freddie Mac is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest  264.00  in Freddie Mac on December 22, 2024 and sell it today you would earn a total of  246.00  from holding Freddie Mac or generate 93.18% return on investment over 90 days.

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

Toyota Motor Corp  vs.  Freddie Mac

Toyota Motor Corp

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Toyota Motor Corp are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. 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.

Freddie Mac

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Freddie Mac are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Freddie Mac unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Toyota and Freddie Mac

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

The idea behind Toyota Motor Corp and Freddie Mac 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.