Correlation Between Mercedes Benz and Toyota

Can any of the company-specific risk be diversified away by investing in both Mercedes Benz and Toyota 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 Mercedes Benz and Toyota into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Mercedes Benz Group and Toyota Motor, you can compare the effects of market volatilities on Mercedes Benz and Toyota 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 Mercedes Benz with a short position of Toyota. Check out your portfolio center. Please also check ongoing floating volatility patterns of Mercedes Benz and Toyota.

Diversification Opportunities for Mercedes Benz and Toyota

0.0

Correlation Coefficient

Mercedes Benz  Toyota

Pay attention - limited upside

The 3 months correlation between Mercedes and Toyota is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding Mercedes Benz Group and Toyota Motor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Toyota Motor and Mercedes Benz 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 Mercedes Benz Group are associated (or correlated) with Toyota. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Toyota Motor has no effect on the direction of Mercedes Benz i.e., Mercedes Benz and Toyota go up and down completely randomly.

Pair Corralation between Mercedes Benz and Toyota

If you would invest (100.00) in Mercedes Benz Group on January 29, 2024 and sell it today you would earn a total of  100.00  from holding Mercedes Benz Group or generate -100.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Flat
Strength	Insignificant
Accuracy	0.0%
Values	Daily Returns

Mercedes Benz Group  vs.  Toyota Motor

Mercedes Benz Group

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Mercedes Benz Group has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable forward indicators, Mercedes Benz is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Toyota Motor

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Toyota Motor are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of very weak primary indicators, Toyota may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Pair Trading with Mercedes Benz and Toyota

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

The idea behind Mercedes Benz Group and Toyota Motor 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.