Correlation Between Toyota and Mercedes Benz
Can any of the company-specific risk be diversified away by investing in both Toyota and Mercedes Benz 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 Mercedes Benz into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Toyota Motor Corp and Mercedes Benz Group AG, you can compare the effects of market volatilities on Toyota and Mercedes Benz 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 Mercedes Benz. Check out your portfolio center. Please also check ongoing floating volatility patterns of Toyota and Mercedes Benz.
Diversification Opportunities for Toyota and Mercedes Benz
0.6 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Toyota and Mercedes is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Toyota Motor Corp and Mercedes Benz Group AG in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mercedes Benz 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 Corp are associated (or correlated) with Mercedes Benz. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Mercedes Benz Group has no effect on the direction of Toyota i.e., Toyota and Mercedes Benz go up and down completely randomly.
Pair Corralation between Toyota and Mercedes Benz
Assuming the 90 days horizon Toyota Motor Corp is expected to generate 1.05 times more return on investment than Mercedes Benz. However, Toyota is 1.05 times more volatile than Mercedes Benz Group AG. It trades about -0.04 of its potential returns per unit of risk. Mercedes Benz Group AG is currently generating about -0.18 per unit of risk. If you would invest 1,873 in Toyota Motor Corp on August 28, 2024 and sell it today you would lose (103.00) from holding Toyota Motor Corp or give up 5.5% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Toyota Motor Corp vs. Mercedes Benz Group AG
Performance |
| Timeline |
| Toyota Motor Corp |
| Mercedes Benz Group |
Toyota and Mercedes Benz Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Toyota and Mercedes Benz
The main advantage of trading using opposite Toyota and Mercedes Benz positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Toyota position performs unexpectedly, Mercedes Benz 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 Mercedes Benz will offset losses from the drop in Mercedes Benz's long position.The idea behind Toyota Motor Corp and Mercedes Benz Group AG 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.| Mercedes Benz vs. Bayerische Motoren Werke | Mercedes Benz vs. Porsche Automobile Holding | Mercedes Benz vs. Volkswagen AG 110 | Mercedes Benz vs. Mercedes Benz Group AG |
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 Portfolio Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.
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