Correlation Between United States and Toyota

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

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

Diversification Opportunities for United States and Toyota

0.38

Correlation Coefficient

United States  Toyota

Weak diversification

The 3 months correlation between United and Toyota is 0.38. Overlapping area represents the amount of risk that can be diversified away by holding United States Steel and Toyota Motor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Toyota Motor and United States 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 United States Steel 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 United States i.e., United States and Toyota go up and down completely randomly.

Pair Corralation between United States and Toyota

Given the investment horizon of 90 days United States Steel is expected to under-perform the Toyota. In addition to that, United States is 1.35 times more volatile than Toyota Motor. It trades about -0.01 of its total potential returns per unit of risk. Toyota Motor is currently generating about 0.29 per unit of volatility. If you would invest  334,000  in Toyota Motor on October 11, 2024 and sell it today you would earn a total of  67,000  from holding Toyota Motor or generate 20.06% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	41.67%
Values	Daily Returns

United States Steel  vs.  Toyota Motor

United States Steel

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days United States Steel has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong primary indicators, United States is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Toyota Motor

Risk-Adjusted Performance

0 of 100

Solid

Over the last 90 days Toyota Motor has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly weak basic indicators, Toyota showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with United States and Toyota

The main advantage of trading using opposite United States and Toyota positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if United States 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 United States Steel 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 Financial Widgets module to easily integrated Macroaxis content with over 30 different plug-and-play financial widgets.