Correlation Between Honda and Marcopolo

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

Diversification Opportunities for Honda and Marcopolo

0.8

Correlation Coefficient

Honda  Marcopolo

Very poor diversification

The 3 months correlation between Honda and Marcopolo is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Honda Motor Co and Marcopolo SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Marcopolo SA 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 Marcopolo. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Marcopolo SA has no effect on the direction of Honda i.e., Honda and Marcopolo go up and down completely randomly.

Pair Corralation between Honda and Marcopolo

Assuming the 90 days trading horizon Honda Motor Co is expected to generate 0.72 times more return on investment than Marcopolo. However, Honda Motor Co is 1.39 times less risky than Marcopolo. It trades about -0.22 of its potential returns per unit of risk. Marcopolo SA is currently generating about -0.42 per unit of risk. If you would invest  18,430  in Honda Motor Co on February 3, 2024 and sell it today you would lose (897.00) from holding Honda Motor Co or give up 4.87% of portfolio value over 90 days.

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

Honda Motor Co  vs.  Marcopolo SA

Honda Motor

Risk-Adjusted Performance

5 of 100

Very Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Honda Motor Co are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Honda is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the investors.

Marcopolo SA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Marcopolo SA has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Marcopolo is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Honda and Marcopolo

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

The idea behind Honda Motor Co and Marcopolo SA 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.