Correlation Between Honda and Fisker

Can any of the company-specific risk be diversified away by investing in both Honda and Fisker 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 Fisker 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 Fisker Inc, you can compare the effects of market volatilities on Honda and Fisker 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 Fisker. Check out your portfolio center. Please also check ongoing floating volatility patterns of Honda and Fisker.

Diversification Opportunities for Honda and Fisker

-0.68

Correlation Coefficient

Honda  Fisker

Excellent diversification

The 3 months correlation between Honda and Fisker is -0.68. Overlapping area represents the amount of risk that can be diversified away by holding Honda Motor Co and Fisker Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fisker Inc 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 Fisker. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fisker Inc has no effect on the direction of Honda i.e., Honda and Fisker go up and down completely randomly.

Pair Corralation between Honda and Fisker

Considering the 90-day investment horizon Honda Motor Co is expected to under-perform the Fisker. But the stock apears to be less risky and, when comparing its historical volatility, Honda Motor Co is 517.92 times less risky than Fisker. The stock trades about -0.42 of its potential returns per unit of risk. The Fisker Inc is currently generating about 0.38 of returns per unit of risk over similar time horizon. If you would invest  2.65  in Fisker Inc on January 26, 2024 and sell it today you would earn a total of  0.90  from holding Fisker Inc or generate 33.96% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	23.81%
Values	Daily Returns

Honda Motor Co  vs.  Fisker Inc

Honda Motor

Risk-Adjusted Performance

6 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Honda Motor Co are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. 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.

Fisker Inc

Risk-Adjusted Performance

0 of 100

OK

Over the last 90 days Fisker Inc has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively unfluctuating basic indicators, Fisker reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Honda and Fisker

The main advantage of trading using opposite Honda and Fisker positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Honda position performs unexpectedly, Fisker 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 Fisker will offset losses from the drop in Fisker's long position.

The idea behind Honda Motor Co and Fisker Inc 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.

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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.