Correlation Between Toyota and MERCEDES-BENZ GRP

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

By analyzing existing cross correlation between Toyota Motor and MERCEDES BENZ GRP ADR14, you can compare the effects of market volatilities on Toyota and MERCEDES-BENZ GRP 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 MERCEDES-BENZ GRP. Check out your portfolio center. Please also check ongoing floating volatility patterns of Toyota and MERCEDES-BENZ GRP.

Diversification Opportunities for Toyota and MERCEDES-BENZ GRP

-0.44

Correlation Coefficient

Toyota  MERCEDES-BENZ GRP

Very good diversification

The 3 months correlation between Toyota and MERCEDES-BENZ is -0.44. Overlapping area represents the amount of risk that can be diversified away by holding Toyota Motor and MERCEDES BENZ GRP ADR14 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MERCEDES BENZ GRP 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 MERCEDES-BENZ GRP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MERCEDES BENZ GRP has no effect on the direction of Toyota i.e., Toyota and MERCEDES-BENZ GRP go up and down completely randomly.

Pair Corralation between Toyota and MERCEDES-BENZ GRP

Assuming the 90 days horizon Toyota Motor is expected to generate 0.82 times more return on investment than MERCEDES-BENZ GRP. However, Toyota Motor is 1.22 times less risky than MERCEDES-BENZ GRP. It trades about 0.06 of its potential returns per unit of risk. MERCEDES BENZ GRP ADR14 is currently generating about 0.03 per unit of risk. If you would invest  1,658  in Toyota Motor on September 24, 2024 and sell it today you would earn a total of  37.00  from holding Toyota Motor or generate 2.23% return on investment over 90 days.

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

Toyota Motor  vs.  MERCEDES BENZ GRP ADR14

Toyota Motor

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Toyota Motor are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Toyota is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

MERCEDES BENZ GRP

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days MERCEDES BENZ GRP ADR14 has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable forward indicators, MERCEDES-BENZ GRP is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Toyota and MERCEDES-BENZ GRP

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

The idea behind Toyota Motor and MERCEDES BENZ GRP ADR14 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.