Correlation Between Honda and Volkswagen
Can any of the company-specific risk be diversified away by investing in both Honda and Volkswagen 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 Volkswagen 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 Volkswagen AG, you can compare the effects of market volatilities on Honda and Volkswagen 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 Volkswagen. Check out your portfolio center. Please also check ongoing floating volatility patterns of Honda and Volkswagen.
Diversification Opportunities for Honda and Volkswagen
0.73 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Honda and Volkswagen is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Honda Motor Co and Volkswagen AG in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Volkswagen AG 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 Volkswagen. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Volkswagen AG has no effect on the direction of Honda i.e., Honda and Volkswagen go up and down completely randomly.
Pair Corralation between Honda and Volkswagen
Considering the 90-day investment horizon Honda Motor Co is expected to under-perform the Volkswagen. But the stock apears to be less risky and, when comparing its historical volatility, Honda Motor Co is 1.71 times less risky than Volkswagen. The stock trades about -0.4 of its potential returns per unit of risk. The Volkswagen AG is currently generating about -0.03 of returns per unit of risk over similar time horizon. If you would invest 14,976 in Volkswagen AG on January 30, 2024 and sell it today you would lose (205.00) from holding Volkswagen AG or give up 1.37% of portfolio value over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Significant |
Accuracy | 100.0% |
Values | Daily Returns |
Honda Motor Co vs. Volkswagen AG
Performance |
Timeline |
Honda Motor |
Volkswagen AG |
Honda and Volkswagen Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Honda and Volkswagen
The main advantage of trading using opposite Honda and Volkswagen positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Honda position performs unexpectedly, Volkswagen 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 Volkswagen will offset losses from the drop in Volkswagen's long position.The idea behind Honda Motor Co and Volkswagen AG 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.Volkswagen vs. Bayerische Motoren Werke | Volkswagen vs. Honda Motor Co | Volkswagen vs. Porsche Automobil Holding | Volkswagen vs. Bayerische Motoren Werke |
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 Top Crypto Exchanges module to search and analyze digital assets across top global cryptocurrency exchanges.
Other Complementary Tools
Balance Of Power Check stock momentum by analyzing Balance Of Power indicator and other technical ratios | |
Portfolio Comparator Compare the composition, asset allocations and performance of any two portfolios in your account | |
Transaction History View history of all your transactions and understand their impact on performance | |
ETFs Find actively traded Exchange Traded Funds (ETF) from around the world | |
Share Portfolio Track or share privately all of your investments from the convenience of any device | |
Portfolio Backtesting Avoid under-diversification and over-optimization by backtesting your portfolios | |
Idea Breakdown Analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes | |
Portfolio Suggestion Get suggestions outside of your existing asset allocation including your own model portfolios | |
Top Crypto Exchanges Search and analyze digital assets across top global cryptocurrency exchanges | |
My Watchlist Analysis Analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like | |
Idea Analyzer Analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas | |
Theme Ratings Determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance |