Correlation Between Toyota and Cemepe Investimentos

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

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

Diversification Opportunities for Toyota and Cemepe Investimentos

0.6

Correlation Coefficient

Toyota  Cemepe Investimentos

Poor diversification

The 3 months correlation between Toyota and Cemepe is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Toyota Motor and Cemepe Investimentos SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cemepe Investimentos and Toyota 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 Toyota Motor are associated (or correlated) with Cemepe Investimentos. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cemepe Investimentos has no effect on the direction of Toyota i.e., Toyota and Cemepe Investimentos go up and down completely randomly.

Pair Corralation between Toyota and Cemepe Investimentos

Assuming the 90 days trading horizon Toyota is expected to generate 1.19 times less return on investment than Cemepe Investimentos. But when comparing it to its historical volatility, Toyota Motor is 1.02 times less risky than Cemepe Investimentos. It trades about 0.13 of its potential returns per unit of risk. Cemepe Investimentos SA is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  440.00  in Cemepe Investimentos SA on September 23, 2024 and sell it today you would earn a total of  60.00  from holding Cemepe Investimentos SA or generate 13.64% return on investment over 90 days.

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

Toyota Motor  vs.  Cemepe Investimentos SA

Toyota Motor

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Toyota Motor are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat uncertain fundamental indicators, Toyota may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Cemepe Investimentos

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Cemepe Investimentos SA are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Cemepe Investimentos is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Toyota and Cemepe Investimentos

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

The idea behind Toyota Motor and Cemepe Investimentos SA 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.