Correlation Between Toyota and Baker Hughes

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

Diversification Opportunities for Toyota and Baker Hughes

0.58

Correlation Coefficient

Toyota  Baker Hughes

Very weak diversification

The 3 months correlation between Toyota and Baker is 0.58. Overlapping area represents the amount of risk that can be diversified away by holding Toyota Motor Corp and Baker Hughes Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Baker Hughes 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 Baker Hughes. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Baker Hughes has no effect on the direction of Toyota i.e., Toyota and Baker Hughes go up and down completely randomly.

Pair Corralation between Toyota and Baker Hughes

Assuming the 90 days trading horizon Toyota is expected to generate 1.59 times less return on investment than Baker Hughes. But when comparing it to its historical volatility, Toyota Motor Corp is 2.02 times less risky than Baker Hughes. It trades about 0.13 of its potential returns per unit of risk. Baker Hughes Co is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  3,715  in Baker Hughes Co on September 27, 2024 and sell it today you would earn a total of  364.00  from holding Baker Hughes Co or generate 9.8% return on investment over 90 days.

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

Toyota Motor Corp  vs.  Baker Hughes Co

Toyota Motor Corp

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Toyota Motor Corp are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. 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.

Baker Hughes

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Baker Hughes Co are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Baker Hughes unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Toyota and Baker Hughes

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

The idea behind Toyota Motor Corp and Baker Hughes Co 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.