Correlation Between Toyota and Bodycote PLC

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

Diversification Opportunities for Toyota and Bodycote PLC

0.48

Correlation Coefficient

Toyota  Bodycote PLC

Very weak diversification

The 3 months correlation between Toyota and Bodycote is 0.48. Overlapping area represents the amount of risk that can be diversified away by holding Toyota Motor Corp and Bodycote PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bodycote PLC 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 Bodycote PLC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bodycote PLC has no effect on the direction of Toyota i.e., Toyota and Bodycote PLC go up and down completely randomly.

Pair Corralation between Toyota and Bodycote PLC

Assuming the 90 days trading horizon Toyota Motor Corp is expected to generate 1.39 times more return on investment than Bodycote PLC. However, Toyota is 1.39 times more volatile than Bodycote PLC. It trades about 0.06 of its potential returns per unit of risk. Bodycote PLC is currently generating about 0.01 per unit of risk. If you would invest  170,290  in Toyota Motor Corp on September 26, 2024 and sell it today you would earn a total of  106,860  from holding Toyota Motor Corp or generate 62.75% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	97.01%
Values	Daily Returns

Toyota Motor Corp  vs.  Bodycote PLC

Toyota Motor Corp

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Toyota Motor Corp are ranked lower than 2 (%) 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.

Bodycote PLC

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Bodycote PLC are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound technical and fundamental indicators, Bodycote PLC is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Toyota and Bodycote PLC

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

The idea behind Toyota Motor Corp and Bodycote PLC 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 Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.