Correlation Between Honda and Lotus Technology
Can any of the company-specific risk be diversified away by investing in both Honda and Lotus Technology 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 Lotus Technology 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 Lotus Technology American, you can compare the effects of market volatilities on Honda and Lotus Technology 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 Lotus Technology. Check out your portfolio center. Please also check ongoing floating volatility patterns of Honda and Lotus Technology.
Diversification Opportunities for Honda and Lotus Technology
0.68 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Honda and Lotus is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Honda Motor Co and Lotus Technology American in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lotus Technology American 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 Lotus Technology. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lotus Technology American has no effect on the direction of Honda i.e., Honda and Lotus Technology go up and down completely randomly.
Pair Corralation between Honda and Lotus Technology
Considering the 90-day investment horizon Honda Motor Co is expected to under-perform the Lotus Technology. But the stock apears to be less risky and, when comparing its historical volatility, Honda Motor Co is 1.15 times less risky than Lotus Technology. The stock trades about -0.38 of its potential returns per unit of risk. The Lotus Technology American is currently generating about -0.11 of returns per unit of risk over similar time horizon. If you would invest 429.00 in Lotus Technology American on August 30, 2024 and sell it today you would lose (29.00) from holding Lotus Technology American or give up 6.76% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Honda Motor Co vs. Lotus Technology American
Performance |
| Timeline |
| Honda Motor |
| Lotus Technology American |
Honda and Lotus Technology Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Honda and Lotus Technology
The main advantage of trading using opposite Honda and Lotus Technology positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Honda position performs unexpectedly, Lotus Technology 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 Lotus Technology will offset losses from the drop in Lotus Technology's long position.The idea behind Honda Motor Co and Lotus Technology American 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.| Lotus Technology vs. Evolution Gaming Group | Lotus Technology vs. Playstudios | Lotus Technology vs. GameStop Corp | Lotus Technology vs. Senmiao Technology |
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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