Correlation Between Gaming Leisure and Honda

Can any of the company-specific risk be diversified away by investing in both Gaming Leisure 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 Gaming Leisure and Honda into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Gaming Leisure Properties and Honda Motor Co, you can compare the effects of market volatilities on Gaming Leisure 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 Gaming Leisure with a short position of Honda. Check out your portfolio center. Please also check ongoing floating volatility patterns of Gaming Leisure and Honda.

Diversification Opportunities for Gaming Leisure and Honda

-0.07

Correlation Coefficient

Gaming Leisure  Honda

Good diversification

The 3 months correlation between Gaming and Honda is -0.07. Overlapping area represents the amount of risk that can be diversified away by holding Gaming Leisure Properties and Honda Motor Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Honda Motor and Gaming Leisure 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 Gaming Leisure Properties 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 Gaming Leisure i.e., Gaming Leisure and Honda go up and down completely randomly.

Pair Corralation between Gaming Leisure and Honda

Given the investment horizon of 90 days Gaming Leisure Properties is expected to generate 1.63 times more return on investment than Honda. However, Gaming Leisure is 1.63 times more volatile than Honda Motor Co. It trades about -0.22 of its potential returns per unit of risk. Honda Motor Co is currently generating about -0.37 per unit of risk. If you would invest  4,554  in Gaming Leisure Properties on January 20, 2024 and sell it today you would lose (319.00) from holding Gaming Leisure Properties or give up 7.0% of portfolio value over 90 days.

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

Gaming Leisure Properties  vs.  Honda Motor Co

Gaming Leisure Properties

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Gaming Leisure Properties has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest inconsistent performance, the Stock's basic indicators remain strong and the recent confusion on Wall Street may also be a sign of long-lasting gains for the firm traders.

Honda Motor

Risk-Adjusted Performance

6 of 100

Modest

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.

Pair Trading with Gaming Leisure and Honda

The main advantage of trading using opposite Gaming Leisure and Honda positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Gaming Leisure 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 Gaming Leisure Properties 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.