Correlation Between Honda and Guangzhou Automobile
Can any of the company-specific risk be diversified away by investing in both Honda and Guangzhou 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 Guangzhou 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 Guangzhou Automobile Group, you can compare the effects of market volatilities on Honda and Guangzhou 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 Guangzhou Automobile. Check out your portfolio center. Please also check ongoing floating volatility patterns of Honda and Guangzhou Automobile.
Diversification Opportunities for Honda and Guangzhou Automobile
-0.54 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between Honda and Guangzhou is -0.54. Overlapping area represents the amount of risk that can be diversified away by holding Honda Motor Co and Guangzhou Automobile Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Guangzhou Automobile 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 Guangzhou Automobile. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Guangzhou Automobile has no effect on the direction of Honda i.e., Honda and Guangzhou Automobile go up and down completely randomly.
Pair Corralation between Honda and Guangzhou Automobile
Considering the 90-day investment horizon Honda Motor Co is expected to under-perform the Guangzhou Automobile. But the stock apears to be less risky and, when comparing its historical volatility, Honda Motor Co is 2.75 times less risky than Guangzhou Automobile. The stock trades about -0.32 of its potential returns per unit of risk. The Guangzhou Automobile Group is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest 41.00 in Guangzhou Automobile Group on August 28, 2024 and sell it today you would lose (1.00) from holding Guangzhou Automobile Group or give up 2.44% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Honda Motor Co vs. Guangzhou Automobile Group
Performance |
| Timeline |
| Honda Motor |
| Guangzhou Automobile |
Honda and Guangzhou Automobile Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Honda and Guangzhou Automobile
The main advantage of trading using opposite Honda and Guangzhou Automobile positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Honda position performs unexpectedly, Guangzhou 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 Guangzhou Automobile will offset losses from the drop in Guangzhou Automobile's long position.The idea behind Honda Motor Co and Guangzhou Automobile Group 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.| Guangzhou Automobile vs. Great Wall Motor | Guangzhou Automobile vs. Dongfeng Group | Guangzhou Automobile vs. Great Wall Motor | Guangzhou Automobile vs. BAIC Motor |
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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..
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