Correlation Between Honda and IShares Physical

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

Diversification Opportunities for Honda and IShares Physical

0.48

Correlation Coefficient

Honda  IShares Physical

Very weak diversification

The 3 months correlation between Honda and IShares is 0.48. Overlapping area represents the amount of risk that can be diversified away by holding Honda Motor Co and iShares Physical Metals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Physical Metals 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 IShares Physical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Physical Metals has no effect on the direction of Honda i.e., Honda and IShares Physical go up and down completely randomly.

Pair Corralation between Honda and IShares Physical

Considering the 90-day investment horizon Honda Motor Co is expected to under-perform the IShares Physical. But the stock apears to be less risky and, when comparing its historical volatility, Honda Motor Co is 1.33 times less risky than IShares Physical. The stock trades about -0.42 of its potential returns per unit of risk. The iShares Physical Metals is currently generating about 0.28 of returns per unit of risk over similar time horizon. If you would invest  4,218  in iShares Physical Metals on January 26, 2024 and sell it today you would earn a total of  302.00  from holding iShares Physical Metals or generate 7.16% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	100.0%
Values	Daily Returns

Honda Motor Co  vs.  iShares Physical Metals

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.

iShares Physical Metals

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Physical Metals are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak primary indicators, IShares Physical reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Honda and IShares Physical

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

The idea behind Honda Motor Co and iShares Physical Metals 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 Crypto Correlations module to use cryptocurrency correlation module to diversify your cryptocurrency portfolio across multiple coins.