Correlation Between Toyota and Mercedes Benz

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

Diversification Opportunities for Toyota and Mercedes Benz

0.86
  Correlation Coefficient

Very poor diversification

The 3 months correlation between Toyota and Mercedes is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Toyota Motor and Mercedes-Benz Group AG in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mercedes-Benz Group 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 Mercedes Benz. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Mercedes-Benz Group has no effect on the direction of Toyota i.e., Toyota and Mercedes Benz go up and down completely randomly.

Pair Corralation between Toyota and Mercedes Benz

Allowing for the 90-day total investment horizon Toyota Motor is expected to generate 2.07 times more return on investment than Mercedes Benz. However, Toyota is 2.07 times more volatile than Mercedes Benz Group AG. It trades about 0.17 of its potential returns per unit of risk. Mercedes Benz Group AG is currently generating about 0.03 per unit of risk. If you would invest  23,729  in Toyota Motor on December 30, 2023 and sell it today you would earn a total of  1,439  from holding Toyota Motor or generate 6.06% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthStrong
Accuracy100.0%
ValuesDaily Returns

Toyota Motor  vs.  Mercedes-Benz Group AG

 Performance 
       Timeline  
Toyota Motor 

Risk-Adjusted Performance

25 of 100

 
Low
 
High
Solid
Compared to the overall equity markets, risk-adjusted returns on investments in Toyota Motor are ranked lower than 25 (%) of all global equities and portfolios over the last 90 days. In spite of very abnormal primary indicators, Toyota displayed solid returns over the last few months and may actually be approaching a breakup point.
Mercedes-Benz Group 

Risk-Adjusted Performance

14 of 100

 
Low
 
High
Good
Compared to the overall equity markets, risk-adjusted returns on investments in Mercedes Benz Group AG are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unfluctuating basic indicators, Mercedes Benz showed solid returns over the last few months and may actually be approaching a breakup point.

Toyota and Mercedes Benz Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Toyota and Mercedes Benz

The main advantage of trading using opposite Toyota and Mercedes Benz positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Toyota position performs unexpectedly, Mercedes Benz 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 Mercedes Benz will offset losses from the drop in Mercedes Benz's long position.
The idea behind Toyota Motor and Mercedes Benz Group AG 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.

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