Correlation Between Honda and Blue Bird
Can any of the company-specific risk be diversified away by investing in both Honda and Blue Bird 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 Blue Bird 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 Blue Bird Corp, you can compare the effects of market volatilities on Honda and Blue Bird 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 Blue Bird. Check out your portfolio center. Please also check ongoing floating volatility patterns of Honda and Blue Bird.
Diversification Opportunities for Honda and Blue Bird
Very poor diversification
The 3 months correlation between Honda and Blue is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Honda Motor Co and Blue Bird Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Blue Bird Corp 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 Blue Bird. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Blue Bird Corp has no effect on the direction of Honda i.e., Honda and Blue Bird go up and down completely randomly.
Pair Corralation between Honda and Blue Bird
Considering the 90-day investment horizon Honda Motor Co is expected to under-perform the Blue Bird. But the stock apears to be less risky and, when comparing its historical volatility, Honda Motor Co is 3.0 times less risky than Blue Bird. The stock trades about -0.41 of its potential returns per unit of risk. The Blue Bird Corp is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest 3,603 in Blue Bird Corp on January 25, 2024 and sell it today you would earn a total of 26.00 from holding Blue Bird Corp or generate 0.72% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Honda Motor Co vs. Blue Bird Corp
Performance |
| Timeline |
| Honda Motor |
| Blue Bird Corp |
Honda and Blue Bird Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Honda and Blue Bird
The main advantage of trading using opposite Honda and Blue Bird positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Honda position performs unexpectedly, Blue Bird 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 Blue Bird will offset losses from the drop in Blue Bird's long position.The idea behind Honda Motor Co and Blue Bird Corp 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.| Blue Bird vs. Phoenix Motor Common | Blue Bird vs. Envirotech Vehicles | Blue Bird vs. Volcon Inc | Blue Bird vs. Zapp Electric Vehicles |
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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.
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