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 110 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
0.65 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Volkswagen and Toyota is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Volkswagen AG 110 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 110 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 110 is expected to under-perform the Toyota. In addition to that, Volkswagen is 1.06 times more volatile than Toyota Motor. It trades about -0.06 of its total potential returns per unit of risk. Toyota Motor is currently generating about -0.01 per unit of volatility. If you would invest 18,505 in Toyota Motor on August 24, 2024 and sell it today you would lose (1,067) from holding Toyota Motor or give up 5.77% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 99.6% |
| Values | Daily Returns |
Volkswagen AG 110 vs. Toyota Motor
Performance |
| Timeline |
| Volkswagen AG 110 |
| 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. Porsche Automobile Holding | Volkswagen vs. Bayerische Motoren Werke | Volkswagen vs. Volkswagen AG | Volkswagen 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.
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