Correlation Between Toyota and AJ Bell

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

Diversification Opportunities for Toyota and AJ Bell

0.26

Correlation Coefficient

Toyota  AJ Bell

Modest diversification

The 3 months correlation between Toyota and AJB is 0.26. Overlapping area represents the amount of risk that can be diversified away by holding Toyota Motor Corp and AJ Bell plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AJ Bell plc 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 AJ Bell. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AJ Bell plc has no effect on the direction of Toyota i.e., Toyota and AJ Bell go up and down completely randomly.

Pair Corralation between Toyota and AJ Bell

Assuming the 90 days trading horizon Toyota Motor Corp is expected to under-perform the AJ Bell. In addition to that, Toyota is 1.38 times more volatile than AJ Bell plc. It trades about -0.07 of its total potential returns per unit of risk. AJ Bell plc is currently generating about -0.05 per unit of volatility. If you would invest  44,116  in AJ Bell plc on December 29, 2024 and sell it today you would lose (2,616) from holding AJ Bell plc or give up 5.93% of portfolio value over 90 days.

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

Toyota Motor Corp  vs.  AJ Bell plc

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.

AJ Bell plc

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Toyota and AJ Bell

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

The idea behind Toyota Motor Corp and AJ Bell plc 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.