Correlation Between Toyota and United Utilities

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

Diversification Opportunities for Toyota and United Utilities

0.24

Correlation Coefficient

Toyota  United Utilities

Modest diversification

The 3 months correlation between Toyota and United is 0.24. Overlapping area represents the amount of risk that can be diversified away by holding Toyota Motor Corp and United Utilities Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on United Utilities 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 United Utilities. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of United Utilities has no effect on the direction of Toyota i.e., Toyota and United Utilities go up and down completely randomly.

Pair Corralation between Toyota and United Utilities

Assuming the 90 days trading horizon Toyota Motor Corp is expected to generate 0.79 times more return on investment than United Utilities. However, Toyota Motor Corp is 1.26 times less risky than United Utilities. It trades about 0.1 of its potential returns per unit of risk. United Utilities Group is currently generating about 0.06 per unit of risk. If you would invest  256,200  in Toyota Motor Corp on September 13, 2024 and sell it today you would earn a total of  11,750  from holding Toyota Motor Corp or generate 4.59% 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.  United Utilities Group

Toyota Motor Corp

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Toyota Motor Corp are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain technical and fundamental indicators, Toyota may actually be approaching a critical reversion point that can send shares even higher in January 2025.

United Utilities

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in United Utilities Group are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, United Utilities is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Toyota and United Utilities

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

The idea behind Toyota Motor Corp and United Utilities 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .