Correlation Between Toyota and Mazda
Can any of the company-specific risk be diversified away by investing in both Toyota and Mazda 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 Mazda into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Toyota Motor and Mazda Motor, you can compare the effects of market volatilities on Toyota and Mazda 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 Mazda. Check out your portfolio center. Please also check ongoing floating volatility patterns of Toyota and Mazda.
Diversification Opportunities for Toyota and Mazda
Poor diversification
The 3 months correlation between Toyota and Mazda is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Toyota Motor and Mazda Motor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mazda Motor 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 are associated (or correlated) with Mazda. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Mazda Motor has no effect on the direction of Toyota i.e., Toyota and Mazda go up and down completely randomly.
Pair Corralation between Toyota and Mazda
Allowing for the 90-day total investment horizon Toyota Motor is expected to generate 0.39 times more return on investment than Mazda. However, Toyota Motor is 2.56 times less risky than Mazda. It trades about -0.01 of its potential returns per unit of risk. Mazda Motor is currently generating about -0.09 per unit of risk. If you would invest 17,663 in Toyota Motor on August 28, 2024 and sell it today you would lose (80.00) from holding Toyota Motor or give up 0.45% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Toyota Motor vs. Mazda Motor
Performance |
| Timeline |
| Toyota Motor |
| Mazda Motor |
Toyota and Mazda Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Toyota and Mazda
The main advantage of trading using opposite Toyota and Mazda positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Toyota position performs unexpectedly, Mazda 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 Mazda will offset losses from the drop in Mazda's long position.The idea behind Toyota Motor and Mazda 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.
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