Correlation Between Toyota and GM
Can any of the company-specific risk be diversified away by investing in both Toyota and GM 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 GM into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Toyota Motor and General Motors, you can compare the effects of market volatilities on Toyota and GM 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 GM. Check out your portfolio center. Please also check ongoing floating volatility patterns of Toyota and GM.
Diversification Opportunities for Toyota and GM
Very poor diversification
The 3 months correlation between Toyota and GM is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Toyota Motor and General Motors in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on General Motors 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 GM. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of General Motors has no effect on the direction of Toyota i.e., Toyota and GM go up and down completely randomly.
Pair Corralation between Toyota and GM
Allowing for the 90-day total investment horizon Toyota Motor is expected to generate 0.66 times more return on investment than GM. However, Toyota Motor is 1.53 times less risky than GM. It trades about 0.05 of its potential returns per unit of risk. General Motors is currently generating about 0.02 per unit of risk. If you would invest 16,585 in Toyota Motor on January 18, 2024 and sell it today you would earn a total of 7,067 from holding Toyota Motor or generate 42.61% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Strong |
Accuracy | 100.0% |
Values | Daily Returns |
Toyota Motor vs. General Motors
Performance |
Timeline |
Toyota Motor |
General Motors |
Toyota and GM Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Toyota and GM
The main advantage of trading using opposite Toyota and GM positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Toyota position performs unexpectedly, GM 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 GM will offset losses from the drop in GM's long position.Toyota vs. Hycroft Mining Holding | Toyota vs. Exela Technologies | Toyota vs. Aquagold International | Toyota vs. Thrivent High Yield |
GM vs. Hycroft Mining Holding | GM vs. Exela Technologies | GM vs. Aquagold International | GM vs. Thrivent High Yield |
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.
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