Correlation Between BYD Co and Toyota
Can any of the company-specific risk be diversified away by investing in both BYD Co 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 BYD Co and Toyota into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between BYD Co Ltd and Toyota Motor, you can compare the effects of market volatilities on BYD Co 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 BYD Co with a short position of Toyota. Check out your portfolio center. Please also check ongoing floating volatility patterns of BYD Co and Toyota.
Diversification Opportunities for BYD Co and Toyota
Good diversification
The 3 months correlation between BYD and Toyota is -0.13. Overlapping area represents the amount of risk that can be diversified away by holding BYD Co Ltd and Toyota Motor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Toyota Motor and BYD Co 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 BYD Co Ltd 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 BYD Co i.e., BYD Co and Toyota go up and down completely randomly.
Pair Corralation between BYD Co and Toyota
Assuming the 90 days horizon BYD Co Ltd is expected to generate 1.49 times more return on investment than Toyota. However, BYD Co is 1.49 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 0.0 per unit of risk. If you would invest 6,273 in BYD Co Ltd on September 14, 2024 and sell it today you would earn a total of 760.00 from holding BYD Co Ltd or generate 12.12% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 99.63% |
| Values | Daily Returns |
BYD Co Ltd vs. Toyota Motor
Performance |
| Timeline |
| BYD Co |
| Toyota Motor |
BYD Co and Toyota Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with BYD Co and Toyota
The main advantage of trading using opposite BYD Co and Toyota positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BYD Co 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 BYD Co Ltd 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.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 Top Crypto Exchanges module to search and analyze digital assets across top global cryptocurrency exchanges.
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