Correlation Between Honda and Nio
Can any of the company-specific risk be diversified away by investing in both Honda and Nio 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 Nio 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 Nio Class A, you can compare the effects of market volatilities on Honda and Nio 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 Nio. Check out your portfolio center. Please also check ongoing floating volatility patterns of Honda and Nio.
Diversification Opportunities for Honda and Nio
Modest diversification
The 3 months correlation between Honda and Nio is 0.29. Overlapping area represents the amount of risk that can be diversified away by holding Honda Motor Co and Nio Class A in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nio Class A 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 Nio. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nio Class A has no effect on the direction of Honda i.e., Honda and Nio go up and down completely randomly.
Pair Corralation between Honda and Nio
Considering the 90-day investment horizon Honda Motor Co is expected to generate 0.59 times more return on investment than Nio. However, Honda Motor Co is 1.71 times less risky than Nio. It trades about -0.32 of its potential returns per unit of risk. Nio Class A is currently generating about -0.26 per unit of risk. If you would invest 3,100 in Honda Motor Co on August 28, 2024 and sell it today you would lose (433.00) from holding Honda Motor Co or give up 13.97% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Honda Motor Co vs. Nio Class A
Performance |
| Timeline |
| Honda Motor |
| Nio Class A |
Honda and Nio Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Honda and Nio
The main advantage of trading using opposite Honda and Nio positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Honda position performs unexpectedly, Nio 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 Nio will offset losses from the drop in Nio's long position.The idea behind Honda Motor Co and Nio Class A 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 Top Crypto Exchanges module to search and analyze digital assets across top global cryptocurrency exchanges.
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