Correlation Between GM and Toray Industries
Can any of the company-specific risk be diversified away by investing in both GM and Toray Industries 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 GM and Toray Industries into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and Toray Industries ADR, you can compare the effects of market volatilities on GM and Toray Industries 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 GM with a short position of Toray Industries. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and Toray Industries.
Diversification Opportunities for GM and Toray Industries
0.5 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between GM and Toray is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Toray Industries ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Toray Industries ADR and GM 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 General Motors are associated (or correlated) with Toray Industries. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Toray Industries ADR has no effect on the direction of GM i.e., GM and Toray Industries go up and down completely randomly.
Pair Corralation between GM and Toray Industries
Allowing for the 90-day total investment horizon GM is expected to generate 2.0 times less return on investment than Toray Industries. But when comparing it to its historical volatility, General Motors is 1.19 times less risky than Toray Industries. It trades about 0.12 of its potential returns per unit of risk. Toray Industries ADR is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest 1,082 in Toray Industries ADR on August 31, 2024 and sell it today you would earn a total of 159.00 from holding Toray Industries ADR or generate 14.7% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
General Motors vs. Toray Industries ADR
Performance |
| Timeline |
| General Motors |
| Toray Industries ADR |
GM and Toray Industries Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GM and Toray Industries
The main advantage of trading using opposite GM and Toray Industries positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, Toray Industries 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 Toray Industries will offset losses from the drop in Toray Industries' long position.The idea behind General Motors and Toray Industries ADR 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.| Toray Industries vs. Unifi Inc | Toray Industries vs. Albany International | Toray Industries vs. Sumitomo Electric Industries | Toray Industries vs. Sekisui House |
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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..
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