Correlation Between Toyota and Nissan
Can any of the company-specific risk be diversified away by investing in both Toyota and Nissan 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 Nissan into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Toyota Motor and Nissan Motor Co, you can compare the effects of market volatilities on Toyota and Nissan 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 Nissan. Check out your portfolio center. Please also check ongoing floating volatility patterns of Toyota and Nissan.
Diversification Opportunities for Toyota and Nissan
Good diversification
The 3 months correlation between Toyota and Nissan is -0.07. Overlapping area represents the amount of risk that can be diversified away by holding Toyota Motor and Nissan Motor Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nissan Motor 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 Nissan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nissan Motor has no effect on the direction of Toyota i.e., Toyota and Nissan go up and down completely randomly.
Pair Corralation between Toyota and Nissan
Allowing for the 90-day total investment horizon Toyota Motor is expected to generate 0.94 times more return on investment than Nissan. However, Toyota Motor is 1.07 times less risky than Nissan. It trades about 0.14 of its potential returns per unit of risk. Nissan Motor Co is currently generating about 0.03 per unit of risk. If you would invest 20,072 in Toyota Motor on January 24, 2024 and sell it today you would earn a total of 2,958 from holding Toyota Motor or generate 14.74% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 50.0% |
| Values | Daily Returns |
Toyota Motor vs. Nissan Motor Co
Performance |
| Timeline |
| Toyota Motor |
| Nissan Motor |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Weak
Toyota and Nissan Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Toyota and Nissan
The main advantage of trading using opposite Toyota and Nissan positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Toyota position performs unexpectedly, Nissan 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 Nissan will offset losses from the drop in Nissan's long position.The idea behind Toyota Motor and Nissan Motor Co 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.| Nissan vs. Honda Motor Co | Nissan vs. Toyota Motor | Nissan vs. Hyundai Motor Co | Nissan vs. Bayerische Motoren Werke |
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 Equity Valuation module to check real value of public entities based on technical and fundamental data.
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