Correlation Between Toyota and Verizon Communications

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

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

Diversification Opportunities for Toyota and Verizon Communications

-0.28

Correlation Coefficient

Toyota  Verizon Communications

Very good diversification

The 3 months correlation between Toyota and Verizon is -0.28. Overlapping area represents the amount of risk that can be diversified away by holding Toyota Motor and Verizon Communications in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Verizon Communications 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 Verizon Communications. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Verizon Communications has no effect on the direction of Toyota i.e., Toyota and Verizon Communications go up and down completely randomly.

Pair Corralation between Toyota and Verizon Communications

Assuming the 90 days trading horizon Toyota Motor is expected to generate 1.55 times more return on investment than Verizon Communications. However, Toyota is 1.55 times more volatile than Verizon Communications. It trades about 0.06 of its potential returns per unit of risk. Verizon Communications is currently generating about 0.06 per unit of risk. If you would invest  325,537  in Toyota Motor on September 28, 2024 and sell it today you would earn a total of  39,463  from holding Toyota Motor or generate 12.12% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	32.71%
Values	Daily Returns

Toyota Motor  vs.  Verizon Communications

Toyota Motor

Risk-Adjusted Performance

0 of 100

Insignificant

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.

Verizon Communications

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Verizon Communications has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's primary indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Toyota and Verizon Communications

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

The idea behind Toyota Motor and Verizon Communications 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 Center module to all portfolio management and optimization tools to improve performance of your portfolios.