Correlation Between LiveWire and Toyota

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

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

Diversification Opportunities for LiveWire and Toyota

-0.28

Correlation Coefficient

LiveWire  Toyota

Very good diversification

The 3 months correlation between LiveWire and Toyota is -0.28. Overlapping area represents the amount of risk that can be diversified away by holding LiveWire Group and Toyota Motor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Toyota Motor and LiveWire 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 LiveWire Group 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 LiveWire i.e., LiveWire and Toyota go up and down completely randomly.

Pair Corralation between LiveWire and Toyota

Given the investment horizon of 90 days LiveWire Group is expected to under-perform the Toyota. In addition to that, LiveWire is 2.3 times more volatile than Toyota Motor. It trades about -0.09 of its total potential returns per unit of risk. Toyota Motor is currently generating about -0.03 per unit of volatility. If you would invest  18,667  in Toyota Motor on September 26, 2024 and sell it today you would lose (524.00) from holding Toyota Motor or give up 2.81% of portfolio value over 90 days.

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

LiveWire Group  vs.  Toyota Motor

LiveWire Group

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days LiveWire Group has generated negative risk-adjusted returns adding no value to investors with long positions. Even with unfluctuating performance in the last few months, the Stock's basic indicators remain relatively invariable which may send shares a bit higher in January 2025. The latest agitation may also be a sign of long-running up-swing for the enterprise retail 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 very healthy primary indicators, Toyota is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with LiveWire and Toyota

The main advantage of trading using opposite LiveWire and Toyota positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if LiveWire 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 LiveWire Group 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.