Correlation Between Bread Financial and Honda

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

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

Diversification Opportunities for Bread Financial and Honda

-0.38

Correlation Coefficient

Bread Financial  Honda

Very good diversification

The 3 months correlation between Bread and Honda is -0.38. Overlapping area represents the amount of risk that can be diversified away by holding Bread Financial Holdings and Honda Motor Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Honda Motor and Bread Financial 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 Bread Financial Holdings 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 Bread Financial i.e., Bread Financial and Honda go up and down completely randomly.

Pair Corralation between Bread Financial and Honda

Assuming the 90 days trading horizon Bread Financial Holdings is expected to generate 1.13 times more return on investment than Honda. However, Bread Financial is 1.13 times more volatile than Honda Motor Co. It trades about 0.12 of its potential returns per unit of risk. Honda Motor Co is currently generating about 0.01 per unit of risk. If you would invest  7,179  in Bread Financial Holdings on October 23, 2024 and sell it today you would earn a total of  1,584  from holding Bread Financial Holdings or generate 22.06% return on investment over 90 days.

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

Bread Financial Holdings  vs.  Honda Motor Co

Bread Financial Holdings

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Bread Financial Holdings are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak essential indicators, Bread Financial sustained solid returns over the last few months and may actually be approaching a breakup point.

Honda Motor

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Honda Motor Co are ranked lower than 1 (%) 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.

Pair Trading with Bread Financial and Honda

The main advantage of trading using opposite Bread Financial and Honda positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Bread Financial 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 Bread Financial Holdings 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.