Correlation Between ECD Automotive and Toyota

Can any of the company-specific risk be diversified away by investing in both ECD Automotive 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 ECD Automotive and Toyota into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between ECD Automotive Design and Toyota Motor, you can compare the effects of market volatilities on ECD Automotive 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 ECD Automotive with a short position of Toyota. Check out your portfolio center. Please also check ongoing floating volatility patterns of ECD Automotive and Toyota.

Diversification Opportunities for ECD Automotive and Toyota

-0.32

Correlation Coefficient

ECD Automotive  Toyota

Very good diversification

The 3 months correlation between ECD and Toyota is -0.32. Overlapping area represents the amount of risk that can be diversified away by holding ECD Automotive Design and Toyota Motor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Toyota Motor and ECD Automotive 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 ECD Automotive Design 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 ECD Automotive i.e., ECD Automotive and Toyota go up and down completely randomly.

Pair Corralation between ECD Automotive and Toyota

Given the investment horizon of 90 days ECD Automotive Design is expected to generate 3.12 times more return on investment than Toyota. However, ECD Automotive is 3.12 times more volatile than Toyota Motor. It trades about 0.03 of its potential returns per unit of risk. Toyota Motor is currently generating about -0.24 per unit of risk. If you would invest  115.00  in ECD Automotive Design on February 17, 2024 and sell it today you would earn a total of  1.00  from holding ECD Automotive Design or generate 0.87% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.65%
Values	Daily Returns

ECD Automotive Design  vs.  Toyota Motor

ECD Automotive Design

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in ECD Automotive Design are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak fundamental indicators, ECD Automotive sustained solid returns over the last few months and may actually be approaching a breakup point.

Toyota Motor

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Toyota Motor has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy primary indicators, Toyota is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with ECD Automotive and Toyota

The main advantage of trading using opposite ECD Automotive and Toyota positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if ECD Automotive 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 ECD Automotive Design 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.