Correlation Between Volkswagen and Honda

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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 Pref 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

0.68
  Correlation Coefficient

Poor diversification

The 3 months correlation between Volkswagen and Honda is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Volkswagen AG Pref 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 Pref 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 Pref is expected to generate 0.88 times more return on investment than Honda. However, Volkswagen AG Pref is 1.14 times less risky than Honda. It trades about 0.39 of its potential returns per unit of risk. Honda Motor Co is currently generating about 0.02 per unit of risk. If you would invest  912.00  in Volkswagen AG Pref on November 1, 2024 and sell it today you would earn a total of  101.00  from holding Volkswagen AG Pref or generate 11.07% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy95.0%
ValuesDaily Returns

Volkswagen AG Pref  vs.  Honda Motor Co

 Performance 
       Timeline  
Volkswagen AG Pref 

Risk-Adjusted Performance

5 of 100

 
Weak
 
Strong
Modest
Compared to the overall equity markets, risk-adjusted returns on investments in Volkswagen AG Pref are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Volkswagen may actually be approaching a critical reversion point that can send shares even higher in March 2025.
Honda Motor 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days Honda Motor Co has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound primary indicators, Honda is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

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.
The idea behind Volkswagen AG Pref 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.
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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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.

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