Correlation Between Toyota and Scandinavian Tobacco

Can any of the company-specific risk be diversified away by investing in both Toyota and Scandinavian Tobacco 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 Scandinavian Tobacco 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 Scandinavian Tobacco Group, you can compare the effects of market volatilities on Toyota and Scandinavian Tobacco 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 Scandinavian Tobacco. Check out your portfolio center. Please also check ongoing floating volatility patterns of Toyota and Scandinavian Tobacco.

Diversification Opportunities for Toyota and Scandinavian Tobacco

-0.66

Correlation Coefficient

Toyota  Scandinavian Tobacco

Excellent diversification

The 3 months correlation between Toyota and Scandinavian is -0.66. Overlapping area represents the amount of risk that can be diversified away by holding Toyota Motor Corp and Scandinavian Tobacco Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Scandinavian Tobacco 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 Scandinavian Tobacco. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Scandinavian Tobacco has no effect on the direction of Toyota i.e., Toyota and Scandinavian Tobacco go up and down completely randomly.

Pair Corralation between Toyota and Scandinavian Tobacco

Assuming the 90 days trading horizon Toyota Motor Corp is expected to generate 1.5 times more return on investment than Scandinavian Tobacco. However, Toyota is 1.5 times more volatile than Scandinavian Tobacco Group. It trades about 0.05 of its potential returns per unit of risk. Scandinavian Tobacco Group is currently generating about 0.0 per unit of risk. If you would invest  182,597  in Toyota Motor Corp on October 1, 2024 and sell it today you would earn a total of  94,553  from holding Toyota Motor Corp or generate 51.78% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	96.65%
Values	Daily Returns

Toyota Motor Corp  vs.  Scandinavian Tobacco Group

Toyota Motor Corp

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Toyota Motor Corp are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady technical and fundamental indicators, Toyota may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Scandinavian Tobacco

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Scandinavian Tobacco Group has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Pair Trading with Toyota and Scandinavian Tobacco

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

The idea behind Toyota Motor Corp and Scandinavian Tobacco Group 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.