Correlation Between Honda and Geely Automobile
Can any of the company-specific risk be diversified away by investing in both Honda and Geely Automobile 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 Geely Automobile 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 Geely Automobile Holdings, you can compare the effects of market volatilities on Honda and Geely Automobile 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 Geely Automobile. Check out your portfolio center. Please also check ongoing floating volatility patterns of Honda and Geely Automobile.
Diversification Opportunities for Honda and Geely Automobile
-0.56 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between Honda and Geely is -0.56. Overlapping area represents the amount of risk that can be diversified away by holding Honda Motor Co and Geely Automobile Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Geely Automobile Holdings 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 Geely Automobile. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Geely Automobile Holdings has no effect on the direction of Honda i.e., Honda and Geely Automobile go up and down completely randomly.
Pair Corralation between Honda and Geely Automobile
Considering the 90-day investment horizon Honda Motor Co is expected to under-perform the Geely Automobile. But the stock apears to be less risky and, when comparing its historical volatility, Honda Motor Co is 1.38 times less risky than Geely Automobile. The stock trades about -0.32 of its potential returns per unit of risk. The Geely Automobile Holdings is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest 3,538 in Geely Automobile Holdings on September 2, 2024 and sell it today you would earn a total of 40.00 from holding Geely Automobile Holdings or generate 1.13% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Honda Motor Co vs. Geely Automobile Holdings
Performance |
| Timeline |
| Honda Motor |
| Geely Automobile Holdings |
Honda and Geely Automobile Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Honda and Geely Automobile
The main advantage of trading using opposite Honda and Geely Automobile positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Honda position performs unexpectedly, Geely Automobile 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 Geely Automobile will offset losses from the drop in Geely Automobile's long position.The idea behind Honda Motor Co and Geely Automobile Holdings 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.| Geely Automobile vs. Volkswagen AG 110 | Geely Automobile vs. Stellantis NV | Geely Automobile vs. Toyota Motor | Geely Automobile vs. Honda Motor Co |
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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.
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