Correlation Between New Oriental and Honda

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

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

Diversification Opportunities for New Oriental and Honda

0.61

Correlation Coefficient

New Oriental  Honda

Poor diversification

The 3 months correlation between New and Honda is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding New Oriental Education and Honda Motor Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Honda Motor and New Oriental 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 New Oriental Education 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 New Oriental i.e., New Oriental and Honda go up and down completely randomly.

Pair Corralation between New Oriental and Honda

Assuming the 90 days trading horizon New Oriental Education is expected to under-perform the Honda. But the stock apears to be less risky and, when comparing its historical volatility, New Oriental Education is 1.59 times less risky than Honda. The stock trades about -0.12 of its potential returns per unit of risk. The Honda Motor Co is currently generating about 0.19 of returns per unit of risk over similar time horizon. If you would invest  16,016  in Honda Motor Co on October 9, 2024 and sell it today you would earn a total of  2,065  from holding Honda Motor Co or generate 12.89% return on investment over 90 days.

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

New Oriental Education  vs.  Honda Motor Co

New Oriental Education

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days New Oriental Education has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong fundamental indicators, New Oriental 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

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Honda Motor Co are ranked lower than 2 (%) 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 New Oriental and Honda

The main advantage of trading using opposite New Oriental and Honda positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if New Oriental 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 New Oriental Education 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 Portfolio Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.