Correlation Between Toyota and Dotdigital Group

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

Diversification Opportunities for Toyota and Dotdigital Group

0.35

Correlation Coefficient

Toyota  Dotdigital Group

Weak diversification

The 3 months correlation between Toyota and Dotdigital is 0.35. Overlapping area represents the amount of risk that can be diversified away by holding Toyota Motor Corp and Dotdigital Group Plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dotdigital Group 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 Dotdigital Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dotdigital Group Plc has no effect on the direction of Toyota i.e., Toyota and Dotdigital Group go up and down completely randomly.

Pair Corralation between Toyota and Dotdigital Group

Assuming the 90 days trading horizon Toyota Motor Corp is expected to generate 0.57 times more return on investment than Dotdigital Group. However, Toyota Motor Corp is 1.77 times less risky than Dotdigital Group. It trades about 0.06 of its potential returns per unit of risk. Dotdigital Group Plc is currently generating about -0.02 per unit of risk. If you would invest  263,400  in Toyota Motor Corp on September 23, 2024 and sell it today you would earn a total of  13,750  from holding Toyota Motor Corp or generate 5.22% return on investment over 90 days.

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

Toyota Motor Corp  vs.  Dotdigital Group Plc

Toyota Motor Corp

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Toyota Motor Corp are ranked lower than 4 (%) 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.

Dotdigital Group Plc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Dotdigital Group Plc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Dotdigital Group 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 Dotdigital Group

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

The idea behind Toyota Motor Corp and Dotdigital Group 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.