Correlation Between Toyota and Amazon
Can any of the company-specific risk be diversified away by investing in both Toyota and Amazon 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 Amazon 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 Amazon Inc, you can compare the effects of market volatilities on Toyota and Amazon 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 Amazon. Check out your portfolio center. Please also check ongoing floating volatility patterns of Toyota and Amazon.
Diversification Opportunities for Toyota and Amazon
Poor diversification
The 3 months correlation between Toyota and Amazon is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Toyota Motor Corp and Amazon Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Amazon Inc 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 Amazon. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Amazon Inc has no effect on the direction of Toyota i.e., Toyota and Amazon go up and down completely randomly.
Pair Corralation between Toyota and Amazon
Assuming the 90 days trading horizon Toyota is expected to generate 2.98 times less return on investment than Amazon. But when comparing it to its historical volatility, Toyota Motor Corp is 1.13 times less risky than Amazon. It trades about 0.15 of its potential returns per unit of risk. Amazon Inc is currently generating about 0.4 of returns per unit of risk over similar time horizon. If you would invest 20,000 in Amazon Inc on September 24, 2024 and sell it today you would earn a total of 2,550 from holding Amazon Inc or generate 12.75% 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. Amazon Inc
Performance |
| Timeline |
| Toyota Motor Corp |
| Amazon Inc |
Toyota and Amazon Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Toyota and Amazon
The main advantage of trading using opposite Toyota and Amazon positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Toyota position performs unexpectedly, Amazon 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 Amazon will offset losses from the drop in Amazon's long position.| Toyota vs. Tyson Foods Cl | Toyota vs. Gamma Communications PLC | Toyota vs. Nordic Semiconductor ASA | Toyota vs. Taiwan Semiconductor Manufacturing |
| Amazon vs. Primary Health Properties | Amazon vs. Universal Health Services | Amazon vs. Celebrus Technologies plc | Amazon vs. PureTech Health plc |
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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.
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