Correlation Between Sony and Honda
Can any of the company-specific risk be diversified away by investing in both Sony 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 Sony and Honda into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Sony Group and Honda Motor Co, you can compare the effects of market volatilities on Sony 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 Sony with a short position of Honda. Check out your portfolio center. Please also check ongoing floating volatility patterns of Sony and Honda.
Diversification Opportunities for Sony and Honda
Very good diversification
The 3 months correlation between Sony and Honda is -0.43. Overlapping area represents the amount of risk that can be diversified away by holding Sony Group and Honda Motor Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Honda Motor and Sony 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 Sony Group 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 Sony i.e., Sony and Honda go up and down completely randomly.
Pair Corralation between Sony and Honda
Assuming the 90 days trading horizon Sony Group is expected to generate 1.15 times more return on investment than Honda. However, Sony is 1.15 times more volatile than Honda Motor Co. It trades about 0.13 of its potential returns per unit of risk. Honda Motor Co is currently generating about -0.03 per unit of risk. If you would invest 8,174 in Sony Group on August 26, 2024 and sell it today you would earn a total of 2,905 from holding Sony Group or generate 35.54% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Sony Group vs. Honda Motor Co
Performance |
| Timeline |
| Sony Group |
| Honda Motor |
Sony and Honda Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Sony and Honda
The main advantage of trading using opposite Sony and Honda positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Sony 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 Sony Group 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. Marcopolo SA | Honda vs. Randon SA Implementos | Honda vs. Fras le SA | Honda vs. Indstrias Romi SA |
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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.
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