Correlation Between Honda and Pfizer

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

Diversification Opportunities for Honda and Pfizer

0.25

Correlation Coefficient

Honda  Pfizer

Modest diversification

The 3 months correlation between Honda and Pfizer is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding Honda Motor Co and Pfizer Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pfizer 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 Pfizer. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pfizer Inc has no effect on the direction of Honda i.e., Honda and Pfizer go up and down completely randomly.

Pair Corralation between Honda and Pfizer

Considering the 90-day investment horizon Honda Motor Co is expected to generate 0.94 times more return on investment than Pfizer. However, Honda Motor Co is 1.06 times less risky than Pfizer. It trades about 0.06 of its potential returns per unit of risk. Pfizer Inc is currently generating about -0.07 per unit of risk. If you would invest  2,570  in Honda Motor Co on February 7, 2024 and sell it today you would earn a total of  926.00  from holding Honda Motor Co or generate 36.03% return on investment over 90 days.

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

Honda Motor Co  vs.  Pfizer Inc

Honda Motor

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Honda Motor Co has generated negative risk-adjusted returns adding no value to investors with long positions. 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.

Pfizer Inc

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Pfizer Inc are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound technical and fundamental indicators, Pfizer is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Honda and Pfizer

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

The idea behind Honda Motor Co and Pfizer 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.

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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 Global Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.