Correlation Between Toyota and Rolls Royce
Can any of the company-specific risk be diversified away by investing in both Toyota and Rolls Royce 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 Rolls Royce 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 Rolls Royce Holdings PLC, you can compare the effects of market volatilities on Toyota and Rolls Royce 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 Rolls Royce. Check out your portfolio center. Please also check ongoing floating volatility patterns of Toyota and Rolls Royce.
Diversification Opportunities for Toyota and Rolls Royce
-0.1 | Correlation Coefficient |
Good diversification
The 3 months correlation between Toyota and Rolls is -0.1. Overlapping area represents the amount of risk that can be diversified away by holding Toyota Motor Corp and Rolls Royce Holdings PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rolls Royce Holdings 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 Rolls Royce. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Rolls Royce Holdings has no effect on the direction of Toyota i.e., Toyota and Rolls Royce go up and down completely randomly.
Pair Corralation between Toyota and Rolls Royce
Assuming the 90 days trading horizon Toyota Motor Corp is expected to under-perform the Rolls Royce. But the stock apears to be less risky and, when comparing its historical volatility, Toyota Motor Corp is 2.98 times less risky than Rolls Royce. The stock trades about -0.05 of its potential returns per unit of risk. The Rolls Royce Holdings PLC is currently generating about 0.36 of returns per unit of risk over similar time horizon. If you would invest 59,540 in Rolls Royce Holdings PLC on December 4, 2024 and sell it today you would earn a total of 18,140 from holding Rolls Royce Holdings PLC or generate 30.47% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Toyota Motor Corp vs. Rolls Royce Holdings PLC
Performance |
| Timeline |
| Toyota Motor Corp |
| Rolls Royce Holdings |
Toyota and Rolls Royce Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Toyota and Rolls Royce
The main advantage of trading using opposite Toyota and Rolls Royce positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Toyota position performs unexpectedly, Rolls Royce 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 Rolls Royce will offset losses from the drop in Rolls Royce's long position.| Toyota vs. Blackrock World Mining | Toyota vs. Compagnie Plastic Omnium | Toyota vs. Lowland Investment Co | Toyota vs. Chrysalis Investments |
| Rolls Royce vs. Spire Healthcare Group | Rolls Royce vs. Vitec Software Group | Rolls Royce vs. Bellevue Healthcare Trust | Rolls Royce vs. Worldwide Healthcare Trust |
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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.
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