Correlation Between Rivian Automotive and Toyota

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

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

Diversification Opportunities for Rivian Automotive and Toyota

-0.49

Correlation Coefficient

Rivian Automotive  Toyota

Very good diversification

The 3 months correlation between Rivian and Toyota is -0.49. Overlapping area represents the amount of risk that can be diversified away by holding Rivian Automotive and Toyota Motor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Toyota Motor and Rivian 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 Rivian Automotive 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 Rivian Automotive i.e., Rivian Automotive and Toyota go up and down completely randomly.

Pair Corralation between Rivian Automotive and Toyota

Given the investment horizon of 90 days Rivian Automotive is expected to generate 3.28 times more return on investment than Toyota. However, Rivian Automotive is 3.28 times more volatile than Toyota Motor. It trades about 0.02 of its potential returns per unit of risk. Toyota Motor is currently generating about -0.12 per unit of risk. If you would invest  1,010  in Rivian Automotive on February 5, 2024 and sell it today you would lose (3.00) from holding Rivian Automotive or give up 0.3% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Rivian Automotive  vs.  Toyota Motor

Rivian Automotive

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Rivian Automotive has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unfluctuating performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in June 2024. The recent disarray may also be a sign of long period up-swing for the firm investors.

Toyota Motor

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Toyota Motor are ranked lower than 10 (%) 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.

Pair Trading with Rivian Automotive and Toyota

The main advantage of trading using opposite Rivian Automotive and Toyota positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Rivian 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 Rivian Automotive 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 Companies Directory module to evaluate performance of over 100,000 Stocks, Funds, and ETFs against different fundamentals.