Correlation Between Suzuki and Toyota

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

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

Diversification Opportunities for Suzuki and Toyota

0.37

Correlation Coefficient

Suzuki  Toyota

Weak diversification

The 3 months correlation between Suzuki and Toyota is 0.37. Overlapping area represents the amount of risk that can be diversified away by holding Suzuki Motor and Toyota Motor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Toyota Motor and Suzuki 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 Suzuki 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 Suzuki i.e., Suzuki and Toyota go up and down completely randomly.

Pair Corralation between Suzuki and Toyota

Assuming the 90 days horizon Suzuki Motor is expected to generate 2.84 times more return on investment than Toyota. However, Suzuki is 2.84 times more volatile than Toyota Motor. It trades about 0.04 of its potential returns per unit of risk. Toyota Motor is currently generating about -0.02 per unit of risk. If you would invest  1,118  in Suzuki Motor on September 22, 2024 and sell it today you would earn a total of  56.00  from holding Suzuki Motor or generate 5.01% return on investment over 90 days.

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

Suzuki Motor  vs.  Toyota Motor

Suzuki Motor

Risk-Adjusted Performance

2 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Suzuki Motor are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly unfluctuating primary indicators, Suzuki may actually be approaching a critical reversion point that can send shares even higher in January 2025.

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 Suzuki and Toyota

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

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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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.