Correlation Between Toyota and Volkswagen
Can any of the company-specific risk be diversified away by investing in both Toyota and Volkswagen 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 Volkswagen 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 Volkswagen AG Pref, you can compare the effects of market volatilities on Toyota and Volkswagen 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 Volkswagen. Check out your portfolio center. Please also check ongoing floating volatility patterns of Toyota and Volkswagen.
Diversification Opportunities for Toyota and Volkswagen
0.62 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Toyota and Volkswagen is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding Toyota Motor Corp and Volkswagen AG Pref in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Volkswagen AG Pref 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 Volkswagen. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Volkswagen AG Pref has no effect on the direction of Toyota i.e., Toyota and Volkswagen go up and down completely randomly.
Pair Corralation between Toyota and Volkswagen
Assuming the 90 days horizon Toyota Motor Corp is expected to generate 0.81 times more return on investment than Volkswagen. However, Toyota Motor Corp is 1.23 times less risky than Volkswagen. It trades about 0.05 of its potential returns per unit of risk. Volkswagen AG Pref is currently generating about -0.35 per unit of risk. If you would invest 1,714 in Toyota Motor Corp on August 27, 2024 and sell it today you would earn a total of 22.00 from holding Toyota Motor Corp or generate 1.28% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Toyota Motor Corp vs. Volkswagen AG Pref
Performance |
| Timeline |
| Toyota Motor Corp |
| Volkswagen AG Pref |
Toyota and Volkswagen Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Toyota and Volkswagen
The main advantage of trading using opposite Toyota and Volkswagen positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Toyota position performs unexpectedly, Volkswagen 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 Volkswagen will offset losses from the drop in Volkswagen's long position.The idea behind Toyota Motor Corp and Volkswagen AG Pref 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.| Volkswagen vs. Volkswagen AG 110 | Volkswagen vs. Porsche Automobil Holding | Volkswagen vs. Ferrari NV | Volkswagen vs. Bayerische Motoren Werke |
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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.
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