Correlation Between Carsales and Toyota

Can any of the company-specific risk be diversified away by investing in both Carsales and Toyota 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 Carsales and Toyota into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between CarsalesCom and Toyota Motor, you can compare the effects of market volatilities on Carsales and Toyota 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 Carsales with a short position of Toyota. Check out your portfolio center. Please also check ongoing floating volatility patterns of Carsales and Toyota.

Diversification Opportunities for Carsales and Toyota

-0.22

Correlation Coefficient

Carsales  Toyota

Very good diversification

The 3 months correlation between Carsales and Toyota is -0.22. Overlapping area represents the amount of risk that can be diversified away by holding CarsalesCom and Toyota Motor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Toyota Motor and Carsales 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 CarsalesCom are associated (or correlated) with Toyota. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Toyota Motor has no effect on the direction of Carsales i.e., Carsales and Toyota go up and down completely randomly.

Pair Corralation between Carsales and Toyota

Assuming the 90 days horizon CarsalesCom is expected to under-perform the Toyota. But the stock apears to be less risky and, when comparing its historical volatility, CarsalesCom is 1.99 times less risky than Toyota. The stock trades about -0.13 of its potential returns per unit of risk. The Toyota Motor is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest  15,000  in Toyota Motor on October 10, 2024 and sell it today you would earn a total of  3,500  from holding Toyota Motor or generate 23.33% return on investment over 90 days.

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

CarsalesCom  vs.  Toyota Motor

CarsalesCom

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days CarsalesCom has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Carsales is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Toyota Motor

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Toyota Motor are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile primary indicators, Toyota reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Carsales and Toyota

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

The idea behind CarsalesCom and Toyota Motor 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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..