Correlation Between Freeport McMoRan and Toyota

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

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

Diversification Opportunities for Freeport McMoRan and Toyota

-0.63

Correlation Coefficient

Freeport McMoRan  Toyota

Excellent diversification

The 3 months correlation between Freeport and Toyota is -0.63. Overlapping area represents the amount of risk that can be diversified away by holding Freeport McMoRan 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 Freeport McMoRan 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 Freeport McMoRan 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 Freeport McMoRan i.e., Freeport McMoRan and Toyota go up and down completely randomly.

Pair Corralation between Freeport McMoRan and Toyota

Assuming the 90 days trading horizon Freeport McMoRan is expected to under-perform the Toyota. In addition to that, Freeport McMoRan is 1.79 times more volatile than Toyota Motor Corp. It trades about -0.18 of its total potential returns per unit of risk. Toyota Motor Corp is currently generating about 0.13 per unit of volatility. If you would invest  260,250  in Toyota Motor Corp on September 27, 2024 and sell it today you would earn a total of  16,900  from holding Toyota Motor Corp or generate 6.49% return on investment over 90 days.

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

Freeport McMoRan  vs.  Toyota Motor Corp

Freeport McMoRan

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Freeport McMoRan has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in January 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Toyota Motor Corp

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Toyota Motor Corp are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. 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 Freeport McMoRan and Toyota

The main advantage of trading using opposite Freeport McMoRan and Toyota positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Freeport McMoRan 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 Freeport McMoRan 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.