Correlation Between Toyota and Exelon Corp

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

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

Diversification Opportunities for Toyota and Exelon Corp

-0.45

Correlation Coefficient

Toyota  Exelon Corp

Very good diversification

The 3 months correlation between Toyota and Exelon is -0.45. Overlapping area represents the amount of risk that can be diversified away by holding Toyota Motor Corp and Exelon Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Exelon Corp 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 Corp are associated (or correlated) with Exelon Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Exelon Corp has no effect on the direction of Toyota i.e., Toyota and Exelon Corp go up and down completely randomly.

Pair Corralation between Toyota and Exelon Corp

Assuming the 90 days trading horizon Toyota Motor Corp is expected to under-perform the Exelon Corp. In addition to that, Toyota is 2.16 times more volatile than Exelon Corp. It trades about -0.02 of its total potential returns per unit of risk. Exelon Corp is currently generating about 0.08 per unit of volatility. If you would invest  3,789  in Exelon Corp on August 31, 2024 and sell it today you would earn a total of  180.00  from holding Exelon Corp or generate 4.75% 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 Corp  vs.  Exelon Corp

Toyota Motor Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Toyota Motor Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, Toyota is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Exelon Corp

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Exelon Corp are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Exelon Corp is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Toyota and Exelon Corp

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

The idea behind Toyota Motor Corp and Exelon Corp 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.