Correlation Between Metro Bank and Toyota
Can any of the company-specific risk be diversified away by investing in both Metro Bank 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 Metro Bank and Toyota into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Metro Bank PLC and Toyota Motor Corp, you can compare the effects of market volatilities on Metro Bank 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 Metro Bank with a short position of Toyota. Check out your portfolio center. Please also check ongoing floating volatility patterns of Metro Bank and Toyota.
Diversification Opportunities for Metro Bank and Toyota
0.39 | Correlation Coefficient |
Weak diversification
The 3 months correlation between Metro and Toyota is 0.39. Overlapping area represents the amount of risk that can be diversified away by holding Metro Bank PLC and Toyota Motor Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Toyota Motor Corp and Metro Bank 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 Metro Bank PLC 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 Corp has no effect on the direction of Metro Bank i.e., Metro Bank and Toyota go up and down completely randomly.
Pair Corralation between Metro Bank and Toyota
Assuming the 90 days trading horizon Metro Bank PLC is expected to under-perform the Toyota. But the stock apears to be less risky and, when comparing its historical volatility, Metro Bank PLC is 1.49 times less risky than Toyota. The stock trades about -0.07 of its potential returns per unit of risk. The Toyota Motor Corp is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest 277,150 in Toyota Motor Corp on October 25, 2024 and sell it today you would earn a total of 14,400 from holding Toyota Motor Corp or generate 5.2% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Very Weak |
Accuracy | 100.0% |
Values | Daily Returns |
Metro Bank PLC vs. Toyota Motor Corp
Performance |
Timeline |
Metro Bank PLC |
Toyota Motor Corp |
Metro Bank and Toyota Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Metro Bank and Toyota
The main advantage of trading using opposite Metro Bank and Toyota positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Metro Bank 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.Metro Bank vs. Livermore Investments Group | Metro Bank vs. Applied Materials | Metro Bank vs. Chrysalis Investments | Metro Bank vs. Nordic Semiconductor ASA |
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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 CEOs Directory module to screen CEOs from public companies around the world.
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