Correlation Between Toyota and Amazon

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

Diversification Opportunities for Toyota and Amazon

0.94
  Correlation Coefficient

Almost no diversification

The 3 months correlation between Toyota and Amazon is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding Toyota Motor and Amazon Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Amazon Inc 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 Amazon. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Amazon Inc has no effect on the direction of Toyota i.e., Toyota and Amazon go up and down completely randomly.

Pair Corralation between Toyota and Amazon

Allowing for the 90-day total investment horizon Toyota Motor is expected to generate 0.91 times more return on investment than Amazon. However, Toyota Motor is 1.1 times less risky than Amazon. It trades about 0.17 of its potential returns per unit of risk. Amazon Inc is currently generating about 0.11 per unit of risk. If you would invest  17,024  in Toyota Motor on December 29, 2023 and sell it today you would earn a total of  8,144  from holding Toyota Motor or generate 47.84% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Strong
Accuracy100.0%
ValuesDaily Returns

Toyota Motor  vs.  Amazon Inc

 Performance 
       Timeline  
Toyota Motor 

Risk-Adjusted Performance

24 of 100

 
Low
 
High
Solid
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.
Amazon Inc 

Risk-Adjusted Performance

13 of 100

 
Low
 
High
Good
Compared to the overall equity markets, risk-adjusted returns on investments in Amazon Inc are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of very conflicting basic indicators, Amazon displayed solid returns over the last few months and may actually be approaching a breakup point.

Toyota and Amazon Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Toyota and Amazon

The main advantage of trading using opposite Toyota and Amazon positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Toyota position performs unexpectedly, Amazon 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 Amazon will offset losses from the drop in Amazon's long position.
The idea behind Toyota Motor and Amazon Inc 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.

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