Correlation Between Honda and Renault SA
Can any of the company-specific risk be diversified away by investing in both Honda and Renault SA 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 Renault SA 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 Renault SA, you can compare the effects of market volatilities on Honda and Renault SA 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 Renault SA. Check out your portfolio center. Please also check ongoing floating volatility patterns of Honda and Renault SA.
Diversification Opportunities for Honda and Renault SA
0.17 | Correlation Coefficient |
Average diversification
The 3 months correlation between Honda and Renault is 0.17. Overlapping area represents the amount of risk that can be diversified away by holding Honda Motor Co and Renault SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Renault SA 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 Renault SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Renault SA has no effect on the direction of Honda i.e., Honda and Renault SA go up and down completely randomly.
Pair Corralation between Honda and Renault SA
Considering the 90-day investment horizon Honda Motor Co is expected to under-perform the Renault SA. In addition to that, Honda is 1.25 times more volatile than Renault SA. It trades about -0.25 of its total potential returns per unit of risk. Renault SA is currently generating about -0.03 per unit of volatility. If you would invest 868.00 in Renault SA on August 24, 2024 and sell it today you would lose (13.00) from holding Renault SA or give up 1.5% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 95.65% |
| Values | Daily Returns |
Honda Motor Co vs. Renault SA
Performance |
| Timeline |
| Honda Motor |
| Renault SA |
Honda and Renault SA Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Honda and Renault SA
The main advantage of trading using opposite Honda and Renault SA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Honda position performs unexpectedly, Renault SA 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 Renault SA will offset losses from the drop in Renault SA's long position.The idea behind Honda Motor Co and Renault SA 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.| Renault SA vs. Mazda Motor | Renault SA vs. Subaru Corp ADR | Renault SA vs. Bayerische Motoren Werke | Renault SA vs. Isuzu Motors |
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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..
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