Correlation Between Volkswagen and Honda
Can any of the company-specific risk be diversified away by investing in both Volkswagen 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 Volkswagen and Honda into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Volkswagen AG 110 and Honda Motor Co, you can compare the effects of market volatilities on Volkswagen 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 Volkswagen with a short position of Honda. Check out your portfolio center. Please also check ongoing floating volatility patterns of Volkswagen and Honda.
Diversification Opportunities for Volkswagen and Honda
0.76 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Volkswagen and Honda is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Volkswagen AG 110 and Honda Motor Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Honda Motor and Volkswagen 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 Volkswagen AG 110 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 Volkswagen i.e., Volkswagen and Honda go up and down completely randomly.
Pair Corralation between Volkswagen and Honda
Assuming the 90 days horizon Volkswagen AG 110 is expected to under-perform the Honda. But the pink sheet apears to be less risky and, when comparing its historical volatility, Volkswagen AG 110 is 33.22 times less risky than Honda. The pink sheet trades about -0.05 of its potential returns per unit of risk. The Honda Motor Co is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest 2,320 in Honda Motor Co on August 30, 2024 and sell it today you would lose (1,454) from holding Honda Motor Co or give up 62.67% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 87.7% |
| Values | Daily Returns |
Volkswagen AG 110 vs. Honda Motor Co
Performance |
| Timeline |
| Volkswagen AG 110 |
| Honda Motor |
Volkswagen and Honda Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Volkswagen and Honda
The main advantage of trading using opposite Volkswagen and Honda positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Volkswagen 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.| Volkswagen vs. Porsche Automobile Holding | Volkswagen vs. Bayerische Motoren Werke | Volkswagen vs. Volkswagen AG | Volkswagen vs. Mercedes Benz Group AG |
| 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.
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