Correlation Between Toyota and Caledonia Investments

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

Diversification Opportunities for Toyota and Caledonia Investments

-0.57

Correlation Coefficient

Toyota  Caledonia Investments

Excellent diversification

The 3 months correlation between Toyota and Caledonia is -0.57. Overlapping area represents the amount of risk that can be diversified away by holding Toyota Motor Corp and Caledonia Investments in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Caledonia Investments 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 Caledonia Investments. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Caledonia Investments has no effect on the direction of Toyota i.e., Toyota and Caledonia Investments go up and down completely randomly.

Pair Corralation between Toyota and Caledonia Investments

Assuming the 90 days trading horizon Toyota is expected to generate 1.26 times less return on investment than Caledonia Investments. In addition to that, Toyota is 1.97 times more volatile than Caledonia Investments. It trades about 0.03 of its total potential returns per unit of risk. Caledonia Investments is currently generating about 0.07 per unit of volatility. If you would invest  353,000  in Caledonia Investments on December 24, 2024 and sell it today you would earn a total of  17,000  from holding Caledonia Investments or generate 4.82% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	98.41%
Values	Daily Returns

Toyota Motor Corp  vs.  Caledonia Investments

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.

Caledonia Investments

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Caledonia Investments are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Caledonia Investments 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 Caledonia Investments

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

The idea behind Toyota Motor Corp and Caledonia Investments 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.