Correlation Between Applied Materials, and Honda

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

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

Diversification Opportunities for Applied Materials, and Honda

0.45

Correlation Coefficient

Applied Materials,  Honda

Very weak diversification

The 3 months correlation between Applied and Honda is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding Applied Materials, and Honda Motor Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Honda Motor and Applied Materials, 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 Applied Materials, 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 Applied Materials, i.e., Applied Materials, and Honda go up and down completely randomly.

Pair Corralation between Applied Materials, and Honda

Assuming the 90 days trading horizon Applied Materials, is expected to generate 66.93 times less return on investment than Honda. But when comparing it to its historical volatility, Applied Materials, is 1.91 times less risky than Honda. It trades about 0.0 of its potential returns per unit of risk. Honda Motor Co is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest  16,016  in Honda Motor Co on October 8, 2024 and sell it today you would earn a total of  1,732  from holding Honda Motor Co or generate 10.81% return on investment over 90 days.

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

Applied Materials,  vs.  Honda Motor Co

Applied Materials,

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Applied Materials, has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong primary indicators, Applied Materials, is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

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 current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Applied Materials, and Honda

The main advantage of trading using opposite Applied Materials, and Honda positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Applied Materials, 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 Applied Materials, 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .