Correlation Between Toyota and NFI
Can any of the company-specific risk be diversified away by investing in both Toyota and NFI 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 NFI into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Toyota Motor and NFI Group, you can compare the effects of market volatilities on Toyota and NFI 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 NFI. Check out your portfolio center. Please also check ongoing floating volatility patterns of Toyota and NFI.
Diversification Opportunities for Toyota and NFI
Poor diversification
The 3 months correlation between Toyota and NFI is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Toyota Motor and NFI Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NFI Group 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 NFI. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NFI Group has no effect on the direction of Toyota i.e., Toyota and NFI go up and down completely randomly.
Pair Corralation between Toyota and NFI
Allowing for the 90-day total investment horizon Toyota Motor is expected to under-perform the NFI. But the stock apears to be less risky and, when comparing its historical volatility, Toyota Motor is 1.53 times less risky than NFI. The stock trades about -0.01 of its potential returns per unit of risk. The NFI Group is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest 991.00 in NFI Group on August 24, 2024 and sell it today you would earn a total of 54.00 from holding NFI Group or generate 5.45% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Toyota Motor vs. NFI Group
Performance |
| Timeline |
| Toyota Motor |
| NFI Group |
Toyota and NFI Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Toyota and NFI
The main advantage of trading using opposite Toyota and NFI positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Toyota position performs unexpectedly, NFI 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 NFI will offset losses from the drop in NFI's long position.The idea behind Toyota Motor and NFI Group 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.| NFI vs. Zapp Electric Vehicles | NFI vs. Guangzhou Automobile Group | NFI vs. Exor NV | NFI vs. Aston Martin Lagonda |
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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.
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