Correlation Between Toyota and Wise Plc

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

Diversification Opportunities for Toyota and Wise Plc

0.59

Correlation Coefficient

Toyota  Wise Plc

Very weak diversification

The 3 months correlation between Toyota and Wise is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding Toyota Motor Corp and Wise plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Wise 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 Wise Plc. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Wise plc has no effect on the direction of Toyota i.e., Toyota and Wise Plc go up and down completely randomly.

Pair Corralation between Toyota and Wise Plc

Assuming the 90 days trading horizon Toyota is expected to generate 3.94 times less return on investment than Wise Plc. But when comparing it to its historical volatility, Toyota Motor Corp is 1.08 times less risky than Wise Plc. It trades about 0.09 of its potential returns per unit of risk. Wise plc is currently generating about 0.34 of returns per unit of risk over similar time horizon. If you would invest  63,000  in Wise plc on September 15, 2024 and sell it today you would earn a total of  30,700  from holding Wise plc or generate 48.73% 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.  Wise plc

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 uncertain technical and fundamental indicators, Toyota may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Wise plc

Risk-Adjusted Performance

26 of 100

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Wise plc are ranked lower than 26 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Wise Plc unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Toyota and Wise Plc

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

The idea behind Toyota Motor Corp and Wise 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.

Check out your portfolio center.

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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.