Correlation Between Mazda and Honda
Can any of the company-specific risk be diversified away by investing in both Mazda and Honda 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 Mazda and Honda into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Mazda Motor and Honda Motor Co, you can compare the effects of market volatilities on Mazda and Honda 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 Mazda with a short position of Honda. Check out your portfolio center. Please also check ongoing floating volatility patterns of Mazda and Honda.
Diversification Opportunities for Mazda and Honda
Very weak diversification
The 3 months correlation between Mazda and Honda is 0.47. Overlapping area represents the amount of risk that can be diversified away by holding Mazda Motor and Honda Motor Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Honda Motor and Mazda 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 Mazda Motor are associated (or correlated) with Honda. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Honda Motor has no effect on the direction of Mazda i.e., Mazda and Honda go up and down completely randomly.
Pair Corralation between Mazda and Honda
Assuming the 90 days horizon Mazda Motor is expected to generate 0.71 times more return on investment than Honda. However, Mazda Motor is 1.41 times less risky than Honda. It trades about -0.09 of its potential returns per unit of risk. Honda Motor Co is currently generating about -0.14 per unit of risk. If you would invest 694.00 in Mazda Motor on August 25, 2024 and sell it today you would lose (47.00) from holding Mazda Motor or give up 6.77% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Mazda Motor vs. Honda Motor Co
Performance |
| Timeline |
| Mazda Motor |
| Honda Motor |
Mazda and Honda Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Mazda and Honda
The main advantage of trading using opposite Mazda and Honda positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Mazda position performs unexpectedly, Honda 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 Honda will offset losses from the drop in Honda's long position.The idea behind Mazda Motor and Honda Motor Co 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.| Honda vs. Bayerische Motoren Werke | Honda vs. Volkswagen AG VZO | Honda vs. Volkswagen AG | Honda vs. Bayerische Motoren Werke |
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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