Correlation Between Ford and Toyota

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

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

Diversification Opportunities for Ford and Toyota

-0.47

Correlation Coefficient

Ford  Toyota

Very good diversification

The 3 months correlation between Ford and Toyota is -0.47. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and Toyota Motor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Toyota Motor and Ford 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 Ford Motor 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 Ford i.e., Ford and Toyota go up and down completely randomly.

Pair Corralation between Ford and Toyota

Given the investment horizon of 90 days Ford Motor is expected to generate 0.97 times more return on investment than Toyota. However, Ford Motor is 1.04 times less risky than Toyota. It trades about -0.01 of its potential returns per unit of risk. Toyota Motor is currently generating about -0.03 per unit of risk. If you would invest  20,772  in Ford Motor on September 26, 2024 and sell it today you would lose (573.00) from holding Ford Motor or give up 2.76% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	43.55%
Values	Daily Returns

Ford Motor  vs.  Toyota Motor

Ford Motor

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Ford Motor has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong primary indicators, Ford is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Toyota Motor

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Toyota Motor has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, Toyota is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Ford and Toyota

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

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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.