Correlation Between Toyota and Fiserv

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

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

Diversification Opportunities for Toyota and Fiserv

-0.61

Correlation Coefficient

Toyota  Fiserv

Excellent diversification

The 3 months correlation between Toyota and Fiserv is -0.61. Overlapping area represents the amount of risk that can be diversified away by holding Toyota Motor and Fiserv Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fiserv Inc 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 Fiserv. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fiserv Inc has no effect on the direction of Toyota i.e., Toyota and Fiserv go up and down completely randomly.

Pair Corralation between Toyota and Fiserv

Assuming the 90 days trading horizon Toyota Motor is expected to generate 1.4 times more return on investment than Fiserv. However, Toyota is 1.4 times more volatile than Fiserv Inc. It trades about 0.22 of its potential returns per unit of risk. Fiserv Inc is currently generating about -0.2 per unit of risk. If you would invest  357,000  in Toyota Motor on September 26, 2024 and sell it today you would earn a total of  8,000  from holding Toyota Motor or generate 2.24% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	19.05%
Values	Daily Returns

Toyota Motor  vs.  Fiserv Inc

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.

Fiserv Inc

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Fiserv Inc are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Fiserv showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Toyota and Fiserv

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

The idea behind Toyota Motor and Fiserv Inc 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.