Correlation Between Honda and Canoo
Can any of the company-specific risk be diversified away by investing in both Honda and Canoo 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 Canoo 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 Canoo Inc, you can compare the effects of market volatilities on Honda and Canoo 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 Canoo. Check out your portfolio center. Please also check ongoing floating volatility patterns of Honda and Canoo.
Diversification Opportunities for Honda and Canoo
Very poor diversification
The 3 months correlation between Honda and Canoo is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Honda Motor Co and Canoo Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Canoo Inc 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 Canoo. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Canoo Inc has no effect on the direction of Honda i.e., Honda and Canoo go up and down completely randomly.
Pair Corralation between Honda and Canoo
Considering the 90-day investment horizon Honda Motor Co is expected to generate 0.15 times more return on investment than Canoo. However, Honda Motor Co is 6.48 times less risky than Canoo. It trades about -0.04 of its potential returns per unit of risk. Canoo Inc is currently generating about -0.11 per unit of risk. If you would invest 3,137 in Honda Motor Co on September 14, 2024 and sell it today you would lose (589.50) from holding Honda Motor Co or give up 18.79% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Honda Motor Co vs. Canoo Inc
Performance |
| Timeline |
| Honda Motor |
| Canoo Inc |
Honda and Canoo Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Honda and Canoo
The main advantage of trading using opposite Honda and Canoo positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Honda position performs unexpectedly, Canoo 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 Canoo will offset losses from the drop in Canoo's long position.The idea behind Honda Motor Co and Canoo Inc 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.| Canoo vs. Lucid Group | Canoo vs. Rivian Automotive | Canoo vs. Polestar Automotive Holding | Canoo vs. Mullen Automotive |
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 Portfolio Dashboard module to portfolio dashboard that provides centralized access to all your investments.
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