Correlation Between Toyota and Geely Automobile
Can any of the company-specific risk be diversified away by investing in both Toyota and Geely Automobile 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 Geely Automobile into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Toyota Motor and Geely Automobile Holdings, you can compare the effects of market volatilities on Toyota and Geely Automobile 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 Geely Automobile. Check out your portfolio center. Please also check ongoing floating volatility patterns of Toyota and Geely Automobile.
Diversification Opportunities for Toyota and Geely Automobile
0.8 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Toyota and Geely is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Toyota Motor and Geely Automobile Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Geely Automobile Holdings 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 are associated (or correlated) with Geely Automobile. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Geely Automobile Holdings has no effect on the direction of Toyota i.e., Toyota and Geely Automobile go up and down completely randomly.
Pair Corralation between Toyota and Geely Automobile
Allowing for the 90-day total investment horizon Toyota Motor is expected to generate 0.67 times more return on investment than Geely Automobile. However, Toyota Motor is 1.49 times less risky than Geely Automobile. It trades about 0.12 of its potential returns per unit of risk. Geely Automobile Holdings is currently generating about -0.04 per unit of risk. If you would invest 16,531 in Toyota Motor on January 24, 2024 and sell it today you would earn a total of 6,499 from holding Toyota Motor or generate 39.31% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Toyota Motor vs. Geely Automobile Holdings
Performance |
| Timeline |
| Toyota Motor |
| Geely Automobile Holdings |
Toyota and Geely Automobile Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Toyota and Geely Automobile
The main advantage of trading using opposite Toyota and Geely Automobile positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Toyota position performs unexpectedly, Geely Automobile 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 Geely Automobile will offset losses from the drop in Geely Automobile's long position.The idea behind Toyota Motor and Geely Automobile Holdings 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.| Geely Automobile vs. Aston Martin Lagonda | Geely Automobile vs. Aston Martin Lagonda | Geely Automobile vs. Great Wall Motor | Geely Automobile vs. Polestar Automotive Holding |
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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..
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