Correlation Between BYD Company and Toyota

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

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

Diversification Opportunities for BYD Company and Toyota

-0.34

Correlation Coefficient

BYD Company  Toyota

Very good diversification

The 3 months correlation between BYD and Toyota is -0.34. Overlapping area represents the amount of risk that can be diversified away by holding BYD Company Limited and Toyota Motor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Toyota Motor and BYD Company 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 BYD Company Limited 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 BYD Company i.e., BYD Company and Toyota go up and down completely randomly.

Pair Corralation between BYD Company and Toyota

Assuming the 90 days trading horizon BYD Company Limited is expected to generate 1.85 times more return on investment than Toyota. However, BYD Company is 1.85 times more volatile than Toyota Motor. It trades about 0.08 of its potential returns per unit of risk. Toyota Motor is currently generating about 0.03 per unit of risk. If you would invest  5,700  in BYD Company Limited on September 24, 2024 and sell it today you would earn a total of  850.00  from holding BYD Company Limited or generate 14.91% return on investment over 90 days.

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

BYD Company Limited  vs.  Toyota Motor

BYD Limited

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in BYD Company Limited are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, BYD Company reported solid returns over the last few months and may actually be approaching a breakup point.

Toyota Motor

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Toyota Motor are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Toyota is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with BYD Company and Toyota

The main advantage of trading using opposite BYD Company and Toyota positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BYD Company 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 BYD Company Limited and Toyota Motor 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.