Correlation Between Toyota and TBC Bank

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

Diversification Opportunities for Toyota and TBC Bank

0.5

Correlation Coefficient

Toyota  TBC Bank

Very weak diversification

The 3 months correlation between Toyota and TBC is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding Toyota Motor Corp and TBC Bank Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TBC Bank Group 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 TBC Bank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of TBC Bank Group has no effect on the direction of Toyota i.e., Toyota and TBC Bank go up and down completely randomly.

Pair Corralation between Toyota and TBC Bank

Assuming the 90 days trading horizon Toyota Motor Corp is expected to generate 2.46 times more return on investment than TBC Bank. However, Toyota is 2.46 times more volatile than TBC Bank Group. It trades about 0.24 of its potential returns per unit of risk. TBC Bank Group is currently generating about 0.08 per unit of risk. If you would invest  262,899  in Toyota Motor Corp on October 9, 2024 and sell it today you would earn a total of  38,201  from holding Toyota Motor Corp or generate 14.53% return on investment over 90 days.

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

Toyota Motor Corp  vs.  TBC Bank Group

Toyota Motor Corp

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Toyota Motor Corp are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady technical and fundamental indicators, Toyota exhibited solid returns over the last few months and may actually be approaching a breakup point.

TBC Bank Group

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in TBC Bank Group are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, TBC Bank unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Toyota and TBC Bank

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

The idea behind Toyota Motor Corp and TBC Bank Group 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.