Correlation Between Toyota and Electric Car

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

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

Diversification Opportunities for Toyota and Electric Car

0.0

Correlation Coefficient

Toyota  Electric Car

Pay attention - limited upside

The 3 months correlation between Toyota and Electric is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding Toyota Motor and Electric Car in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Electric Car 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 Electric Car. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Electric Car has no effect on the direction of Toyota i.e., Toyota and Electric Car go up and down completely randomly.

Pair Corralation between Toyota and Electric Car

If you would invest  0.01  in Electric Car on February 1, 2024 and sell it today you would earn a total of  0.00  from holding Electric Car or generate 0.0% return on investment over 90 days.

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

Toyota Motor  vs.  Electric Car

Toyota Motor

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Toyota Motor are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of very weak primary indicators, Toyota displayed solid returns over the last few months and may actually be approaching a breakup point.

Electric Car

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Electric Car has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable fundamental indicators, Electric Car is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Toyota and Electric Car

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

The idea behind Toyota Motor and Electric Car 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.

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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.