Correlation Between Toyota and RTW Venture

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

Diversification Opportunities for Toyota and RTW Venture

0.56

Correlation Coefficient

Toyota  RTW Venture

Very weak diversification

The 3 months correlation between Toyota and RTW is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding Toyota Motor Corp and RTW Venture Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on RTW Venture Fund 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 RTW Venture. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of RTW Venture Fund has no effect on the direction of Toyota i.e., Toyota and RTW Venture go up and down completely randomly.

Pair Corralation between Toyota and RTW Venture

Assuming the 90 days trading horizon Toyota Motor Corp is expected to generate 1.65 times more return on investment than RTW Venture. However, Toyota is 1.65 times more volatile than RTW Venture Fund. It trades about -0.07 of its potential returns per unit of risk. RTW Venture Fund is currently generating about -0.13 per unit of risk. If you would invest  308,998  in Toyota Motor Corp on December 28, 2024 and sell it today you would lose (33,198) from holding Toyota Motor Corp or give up 10.74% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.44%
Values	Daily Returns

Toyota Motor Corp  vs.  RTW Venture Fund

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 uncertain 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.

RTW Venture Fund

Risk-Adjusted Performance

Very Weak

Over the last 90 days RTW Venture Fund has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain 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.

Pair Trading with Toyota and RTW Venture

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

The idea behind Toyota Motor Corp and RTW Venture Fund 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 CEOs Directory module to screen CEOs from public companies around the world.