Correlation Between Toyota and Howmet Aerospace

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

By analyzing existing cross correlation between Toyota Motor Corp and Howmet Aerospace, you can compare the effects of market volatilities on Toyota and Howmet Aerospace 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 Howmet Aerospace. Check out your portfolio center. Please also check ongoing floating volatility patterns of Toyota and Howmet Aerospace.

Diversification Opportunities for Toyota and Howmet Aerospace

0.28

Correlation Coefficient

Toyota  Howmet Aerospace

Modest diversification

The 3 months correlation between Toyota and Howmet is 0.28. Overlapping area represents the amount of risk that can be diversified away by holding Toyota Motor Corp and Howmet Aerospace in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Howmet Aerospace 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 Corp are associated (or correlated) with Howmet Aerospace. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Howmet Aerospace has no effect on the direction of Toyota i.e., Toyota and Howmet Aerospace go up and down completely randomly.

Pair Corralation between Toyota and Howmet Aerospace

Assuming the 90 days trading horizon Toyota is expected to generate 1.09 times less return on investment than Howmet Aerospace. But when comparing it to its historical volatility, Toyota Motor Corp is 2.5 times less risky than Howmet Aerospace. It trades about 0.34 of its potential returns per unit of risk. Howmet Aerospace is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  10,348  in Howmet Aerospace on August 10, 2024 and sell it today you would earn a total of  945.00  from holding Howmet Aerospace or generate 9.13% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	95.65%
Values	Daily Returns

Toyota Motor Corp  vs.  Howmet Aerospace

Toyota Motor Corp

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Toyota Motor Corp are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain technical and fundamental indicators, Toyota exhibited solid returns over the last few months and may actually be approaching a breakup point.

Howmet Aerospace

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Howmet Aerospace are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Howmet Aerospace unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Toyota and Howmet Aerospace

The main advantage of trading using opposite Toyota and Howmet Aerospace positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Toyota position performs unexpectedly, Howmet Aerospace 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 Howmet Aerospace will offset losses from the drop in Howmet Aerospace's long position.

The idea behind Toyota Motor Corp and Howmet Aerospace 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.