Correlation Between Mercedes Benz and Isuzu Motors

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

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

Diversification Opportunities for Mercedes Benz and Isuzu Motors

0.29

Correlation Coefficient

Mercedes Benz  Isuzu Motors

Modest diversification

The 3 months correlation between Mercedes and Isuzu is 0.29. Overlapping area represents the amount of risk that can be diversified away by holding Mercedes Benz Group AG and Isuzu Motors in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Isuzu Motors and Mercedes Benz 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 Mercedes Benz Group AG are associated (or correlated) with Isuzu Motors. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Isuzu Motors has no effect on the direction of Mercedes Benz i.e., Mercedes Benz and Isuzu Motors go up and down completely randomly.

Pair Corralation between Mercedes Benz and Isuzu Motors

Assuming the 90 days horizon Mercedes Benz Group AG is expected to under-perform the Isuzu Motors. But the pink sheet apears to be less risky and, when comparing its historical volatility, Mercedes Benz Group AG is 1.19 times less risky than Isuzu Motors. The pink sheet trades about -0.01 of its potential returns per unit of risk. The Isuzu Motors is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  1,274  in Isuzu Motors on September 15, 2024 and sell it today you would earn a total of  132.00  from holding Isuzu Motors or generate 10.36% return on investment over 90 days.

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

Mercedes Benz Group AG  vs.  Isuzu Motors

Mercedes Benz Group

Risk-Adjusted Performance

0 of 100

Very Weak

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

Isuzu Motors

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Mercedes Benz and Isuzu Motors

The main advantage of trading using opposite Mercedes Benz and Isuzu Motors positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Mercedes Benz position performs unexpectedly, Isuzu Motors 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 Isuzu Motors will offset losses from the drop in Isuzu Motors' long position.

The idea behind Mercedes Benz Group AG and Isuzu Motors 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.