Correlation Between Meta Platforms and Honda

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Can any of the company-specific risk be diversified away by investing in both Meta Platforms 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 Meta Platforms and Honda into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Meta Platforms and Honda Motor Co, you can compare the effects of market volatilities on Meta Platforms 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 Meta Platforms with a short position of Honda. Check out your portfolio center. Please also check ongoing floating volatility patterns of Meta Platforms and Honda.

Diversification Opportunities for Meta Platforms and Honda

-0.81
  Correlation Coefficient

Pay attention - limited upside

The 3 months correlation between Meta and Honda is -0.81. Overlapping area represents the amount of risk that can be diversified away by holding Meta Platforms and Honda Motor Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Honda Motor and Meta Platforms 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 Meta Platforms 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 Meta Platforms i.e., Meta Platforms and Honda go up and down completely randomly.

Pair Corralation between Meta Platforms and Honda

Allowing for the 90-day total investment horizon Meta Platforms is expected to under-perform the Honda. In addition to that, Meta Platforms is 2.85 times more volatile than Honda Motor Co. It trades about -0.09 of its total potential returns per unit of risk. Honda Motor Co is currently generating about 0.06 per unit of volatility. If you would invest  2,485  in Honda Motor Co on December 29, 2023 and sell it today you would earn a total of  1,238  from holding Honda Motor Co or generate 49.82% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthSignificant
Accuracy11.11%
ValuesDaily Returns

Meta Platforms  vs.  Honda Motor Co

 Performance 
       Timeline  
Meta Platforms 

Risk-Adjusted Performance

0 of 100

 
Low
 
High
Very Weak
Over the last 90 days Meta Platforms has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong fundamental drivers, Meta Platforms is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.
Honda Motor 

Risk-Adjusted Performance

20 of 100

 
Low
 
High
Solid
Compared to the overall equity markets, risk-adjusted returns on investments in Honda Motor Co are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak primary indicators, Honda exhibited solid returns over the last few months and may actually be approaching a breakup point.

Meta Platforms and Honda Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Meta Platforms and Honda

The main advantage of trading using opposite Meta Platforms and Honda positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Meta Platforms 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 Meta Platforms 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.
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 Global Correlations module to find global opportunities by holding instruments from different markets.

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