Correlation Between Toyota and Sage Group

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

Diversification Opportunities for Toyota and Sage Group

0.37

Correlation Coefficient

Toyota  Sage Group

Weak diversification

The 3 months correlation between Toyota and Sage is 0.37. Overlapping area represents the amount of risk that can be diversified away by holding Toyota Motor Corp and Sage Group PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sage Group 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 Sage Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sage Group PLC has no effect on the direction of Toyota i.e., Toyota and Sage Group go up and down completely randomly.

Pair Corralation between Toyota and Sage Group

Assuming the 90 days trading horizon Toyota is expected to generate 1.56 times less return on investment than Sage Group. But when comparing it to its historical volatility, Toyota Motor Corp is 1.23 times less risky than Sage Group. It trades about 0.13 of its potential returns per unit of risk. Sage Group PLC is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest  101,491  in Sage Group PLC on October 14, 2024 and sell it today you would earn a total of  26,459  from holding Sage Group PLC or generate 26.07% return on investment over 90 days.

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

Toyota Motor Corp  vs.  Sage Group PLC

Toyota Motor Corp

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Toyota Motor Corp are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain technical and fundamental indicators, Toyota exhibited solid returns over the last few months and may actually be approaching a breakup point.

Sage Group PLC

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Sage Group 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, Sage Group exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Toyota and Sage Group

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

The idea behind Toyota Motor Corp and Sage Group 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.