Correlation Between Toyota and Somero Enterprise

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

Diversification Opportunities for Toyota and Somero Enterprise

0.69

Correlation Coefficient

Toyota  Somero Enterprise

Poor diversification

The 3 months correlation between Toyota and Somero is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding Toyota Motor Corp and Somero Enterprise in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Somero Enterprise 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 Somero Enterprise. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Somero Enterprise has no effect on the direction of Toyota i.e., Toyota and Somero Enterprise go up and down completely randomly.

Pair Corralation between Toyota and Somero Enterprise

Assuming the 90 days trading horizon Toyota Motor Corp is expected to generate 1.03 times more return on investment than Somero Enterprise. However, Toyota is 1.03 times more volatile than Somero Enterprise. It trades about 0.06 of its potential returns per unit of risk. Somero Enterprise is currently generating about 0.01 per unit of risk. If you would invest  178,539  in Toyota Motor Corp on October 11, 2024 and sell it today you would earn a total of  128,761  from holding Toyota Motor Corp or generate 72.12% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	97.18%
Values	Daily Returns

Toyota Motor Corp  vs.  Somero Enterprise

Toyota Motor Corp

Risk-Adjusted Performance

12 of 100

Good

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

Somero Enterprise

Risk-Adjusted Performance

9 of 100

OK

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

Pair Trading with Toyota and Somero Enterprise

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

The idea behind Toyota Motor Corp and Somero Enterprise 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.

Check out your portfolio center.

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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.