Correlation Between Daimler AG and Toyota

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Can any of the company-specific risk be diversified away by investing in both Daimler AG 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 Daimler AG and Toyota into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Daimler AG ADR and Toyota Motor, you can compare the effects of market volatilities on Daimler AG 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 Daimler AG with a short position of Toyota. Check out your portfolio center. Please also check ongoing floating volatility patterns of Daimler AG and Toyota.

Diversification Opportunities for Daimler AG and Toyota

0.0
  Correlation Coefficient

Pay attention - limited upside

The 3 months correlation between Daimler and Toyota is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding Daimler AG ADR and Toyota Motor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Toyota Motor and Daimler AG 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 Daimler AG ADR 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 Daimler AG i.e., Daimler AG and Toyota go up and down completely randomly.

Pair Corralation between Daimler AG and Toyota

If you would invest  23,804  in Toyota Motor on December 29, 2023 and sell it today you would earn a total of  1,411  from holding Toyota Motor or generate 5.93% return on investment over 90 days.
Time Period3 Months [change]
DirectionFlat 
StrengthInsignificant
Accuracy4.55%
ValuesDaily Returns

Daimler AG ADR  vs.  Toyota Motor

 Performance 
       Timeline  
Daimler AG ADR 

Risk-Adjusted Performance

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Very Weak
Over the last 90 days Daimler AG ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, Daimler AG 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

24 of 100

 
Low
 
High
Strong
Compared to the overall equity markets, risk-adjusted returns on investments in Toyota Motor are ranked lower than 24 (%) 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.

Daimler AG and Toyota Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Daimler AG and Toyota

The main advantage of trading using opposite Daimler AG and Toyota positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Daimler AG 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 Daimler AG ADR 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.

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