Correlation Between Toyota and DFS Furniture

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

Diversification Opportunities for Toyota and DFS Furniture

0.09

Correlation Coefficient

Toyota  DFS Furniture

Significant diversification

The 3 months correlation between Toyota and DFS is 0.09. Overlapping area represents the amount of risk that can be diversified away by holding Toyota Motor Corp and DFS Furniture PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on DFS Furniture 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 DFS Furniture. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of DFS Furniture PLC has no effect on the direction of Toyota i.e., Toyota and DFS Furniture go up and down completely randomly.

Pair Corralation between Toyota and DFS Furniture

Assuming the 90 days trading horizon Toyota is expected to generate 1.22 times less return on investment than DFS Furniture. But when comparing it to its historical volatility, Toyota Motor Corp is 1.48 times less risky than DFS Furniture. It trades about 0.15 of its potential returns per unit of risk. DFS Furniture PLC is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  13,500  in DFS Furniture PLC on September 23, 2024 and sell it today you would earn a total of  640.00  from holding DFS Furniture PLC or generate 4.74% return on investment over 90 days.

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

Toyota Motor Corp  vs.  DFS Furniture PLC

Toyota Motor Corp

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Toyota Motor Corp are ranked lower than 4 (%) 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.

DFS Furniture PLC

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in DFS Furniture PLC are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain technical and fundamental indicators, DFS Furniture exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Toyota and DFS Furniture

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

The idea behind Toyota Motor Corp and DFS Furniture 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.