Correlation Between Bayerische Motoren and Honda

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

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

Diversification Opportunities for Bayerische Motoren and Honda

0.8

Correlation Coefficient

Bayerische Motoren  Honda

Very poor diversification

The 3 months correlation between Bayerische and Honda is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Bayerische Motoren Werke and Honda Motor Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Honda Motor and Bayerische Motoren 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 Bayerische Motoren Werke 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 Bayerische Motoren i.e., Bayerische Motoren and Honda go up and down completely randomly.

Pair Corralation between Bayerische Motoren and Honda

Assuming the 90 days horizon Bayerische Motoren Werke is expected to generate 0.92 times more return on investment than Honda. However, Bayerische Motoren Werke is 1.09 times less risky than Honda. It trades about -0.02 of its potential returns per unit of risk. Honda Motor Co is currently generating about -0.28 per unit of risk. If you would invest  7,800  in Bayerische Motoren Werke on September 4, 2024 and sell it today you would lose (150.00) from holding Bayerische Motoren Werke or give up 1.92% of portfolio value over 90 days.

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

Bayerische Motoren Werke  vs.  Honda Motor Co

Bayerische Motoren Werke

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Bayerische Motoren Werke has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

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. Despite latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Bayerische Motoren and Honda

The main advantage of trading using opposite Bayerische Motoren and Honda positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Bayerische Motoren 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 Bayerische Motoren Werke 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.