Correlation Between Honda and BYD Co

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Can any of the company-specific risk be diversified away by investing in both Honda and BYD Co 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 Honda and BYD Co into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Honda Motor Co and BYD Co Ltd, you can compare the effects of market volatilities on Honda and BYD Co 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 Honda with a short position of BYD Co. Check out your portfolio center. Please also check ongoing floating volatility patterns of Honda and BYD Co.

Diversification Opportunities for Honda and BYD Co

0.16
  Correlation Coefficient

Average diversification

The 3 months correlation between Honda and BYD is 0.16. Overlapping area represents the amount of risk that can be diversified away by holding Honda Motor Co and BYD Co Ltd in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BYD Co and Honda 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 Honda Motor Co are associated (or correlated) with BYD Co. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BYD Co has no effect on the direction of Honda i.e., Honda and BYD Co go up and down completely randomly.

Pair Corralation between Honda and BYD Co

Considering the 90-day investment horizon Honda Motor Co is expected to under-perform the BYD Co. But the stock apears to be less risky and, when comparing its historical volatility, Honda Motor Co is 1.59 times less risky than BYD Co. The stock trades about -0.04 of its potential returns per unit of risk. The BYD Co Ltd is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  6,273  in BYD Co Ltd on September 14, 2024 and sell it today you would earn a total of  760.00  from holding BYD Co Ltd or generate 12.12% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthInsignificant
Accuracy99.63%
ValuesDaily Returns

Honda Motor Co  vs.  BYD Co Ltd

 Performance 
       Timeline  
Honda Motor 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days Honda Motor Co has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's primary indicators remain rather sound which may send shares a bit higher in January 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.
BYD Co 

Risk-Adjusted Performance

6 of 100

 
Weak
 
Strong
Modest
Compared to the overall equity markets, risk-adjusted returns on investments in BYD Co Ltd are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of fairly inconsistent fundamental indicators, BYD Co showed solid returns over the last few months and may actually be approaching a breakup point.

Honda and BYD Co Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Honda and BYD Co

The main advantage of trading using opposite Honda and BYD Co positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Honda position performs unexpectedly, BYD Co 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 BYD Co will offset losses from the drop in BYD Co's long position.
The idea behind Honda Motor Co and BYD Co Ltd 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.

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