Correlation Between Toyota and Ricoh

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

Diversification Opportunities for Toyota and Ricoh

0.49

Correlation Coefficient

Toyota  Ricoh

Very weak diversification

The 3 months correlation between Toyota and Ricoh is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding Toyota Motor Corp and Ricoh Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ricoh 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 Ricoh. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ricoh has no effect on the direction of Toyota i.e., Toyota and Ricoh go up and down completely randomly.

Pair Corralation between Toyota and Ricoh

Assuming the 90 days trading horizon Toyota is expected to generate 2.64 times less return on investment than Ricoh. In addition to that, Toyota is 1.05 times more volatile than Ricoh Co. It trades about 0.06 of its total potential returns per unit of risk. Ricoh Co is currently generating about 0.16 per unit of volatility. If you would invest  153,550  in Ricoh Co on September 23, 2024 and sell it today you would earn a total of  24,250  from holding Ricoh Co or generate 15.79% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.48%
Values	Daily Returns

Toyota Motor Corp  vs.  Ricoh Co

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.

Ricoh

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Ricoh Co are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Ricoh unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Toyota and Ricoh

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

The idea behind Toyota Motor Corp and Ricoh 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.