Correlation Between Toyota and Fair Oaks

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

Diversification Opportunities for Toyota and Fair Oaks

0.43

Correlation Coefficient

Toyota  Fair Oaks

Very weak diversification

The 3 months correlation between Toyota and Fair is 0.43. Overlapping area represents the amount of risk that can be diversified away by holding Toyota Motor Corp and Fair Oaks Income in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fair Oaks Income 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 Fair Oaks. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fair Oaks Income has no effect on the direction of Toyota i.e., Toyota and Fair Oaks go up and down completely randomly.

Pair Corralation between Toyota and Fair Oaks

Assuming the 90 days trading horizon Toyota Motor Corp is expected to generate 1.8 times more return on investment than Fair Oaks. However, Toyota is 1.8 times more volatile than Fair Oaks Income. It trades about 0.06 of its potential returns per unit of risk. Fair Oaks Income is currently generating about 0.07 per unit of risk. If you would invest  170,583  in Toyota Motor Corp on September 25, 2024 and sell it today you would earn a total of  106,567  from holding Toyota Motor Corp or generate 62.47% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	97.2%
Values	Daily Returns

Toyota Motor Corp  vs.  Fair Oaks Income

Toyota Motor Corp

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Toyota Motor Corp are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady technical and fundamental indicators, Toyota may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Fair Oaks Income

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Fair Oaks Income are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Fair Oaks 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 Fair Oaks

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

The idea behind Toyota Motor Corp and Fair Oaks Income 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.