Correlation Between Volkswagen and Toyota
Can any of the company-specific risk be diversified away by investing in both Volkswagen and Toyota 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 Volkswagen and Toyota into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Volkswagen AG and Toyota Motor, you can compare the effects of market volatilities on Volkswagen and Toyota 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 Volkswagen with a short position of Toyota. Check out your portfolio center. Please also check ongoing floating volatility patterns of Volkswagen and Toyota.
Diversification Opportunities for Volkswagen and Toyota
0.45 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Volkswagen and Toyota is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding Volkswagen AG and Toyota Motor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Toyota Motor and Volkswagen 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 Volkswagen AG are associated (or correlated) with Toyota. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Toyota Motor has no effect on the direction of Volkswagen i.e., Volkswagen and Toyota go up and down completely randomly.
Pair Corralation between Volkswagen and Toyota
Assuming the 90 days horizon Volkswagen AG is expected to under-perform the Toyota. In addition to that, Volkswagen is 1.15 times more volatile than Toyota Motor. It trades about -0.03 of its total potential returns per unit of risk. Toyota Motor is currently generating about 0.04 per unit of volatility. If you would invest 13,176 in Toyota Motor on January 18, 2025 and sell it today you would earn a total of 4,334 from holding Toyota Motor or generate 32.89% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Volkswagen AG vs. Toyota Motor
Performance |
| Timeline |
| Volkswagen AG |
| Toyota Motor |
Volkswagen and Toyota Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Volkswagen and Toyota
The main advantage of trading using opposite Volkswagen and Toyota positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Volkswagen position performs unexpectedly, Toyota 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 Toyota will offset losses from the drop in Toyota's long position.| Volkswagen vs. Bayerische Motoren Werke | Volkswagen vs. Honda Motor Co | Volkswagen vs. Porsche Automobil Holding | 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.
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