Correlation Between Host Hotels and Toyota

Can any of the company-specific risk be diversified away by investing in both Host Hotels 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 Host Hotels and Toyota into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Host Hotels Resorts and Toyota Motor Corp, you can compare the effects of market volatilities on Host Hotels 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 Host Hotels with a short position of Toyota. Check out your portfolio center. Please also check ongoing floating volatility patterns of Host Hotels and Toyota.

Diversification Opportunities for Host Hotels and Toyota

0.27

Correlation Coefficient

Host Hotels  Toyota

Modest diversification

The 3 months correlation between Host and Toyota is 0.27. Overlapping area represents the amount of risk that can be diversified away by holding Host Hotels Resorts and Toyota Motor Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Toyota Motor Corp and Host Hotels 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 Host Hotels Resorts 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 Corp has no effect on the direction of Host Hotels i.e., Host Hotels and Toyota go up and down completely randomly.

Pair Corralation between Host Hotels and Toyota

Assuming the 90 days trading horizon Host Hotels Resorts is expected to generate 0.67 times more return on investment than Toyota. However, Host Hotels Resorts is 1.5 times less risky than Toyota. It trades about 0.13 of its potential returns per unit of risk. Toyota Motor Corp is currently generating about -0.03 per unit of risk. If you would invest  1,658  in Host Hotels Resorts on September 5, 2024 and sell it today you would earn a total of  207.00  from holding Host Hotels Resorts or generate 12.48% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Host Hotels Resorts  vs.  Toyota Motor Corp

Host Hotels Resorts

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Host Hotels Resorts are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady basic indicators, Host Hotels may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Toyota Motor Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Toyota Motor Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, Toyota is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Host Hotels and Toyota

The main advantage of trading using opposite Host Hotels and Toyota positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Host Hotels 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.

The idea behind Host Hotels Resorts and Toyota Motor Corp 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.

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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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.