Correlation Between ECD Automotive and Honda

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

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

Diversification Opportunities for ECD Automotive and Honda

-0.42

Correlation Coefficient

ECD Automotive  Honda

Very good diversification

The 3 months correlation between ECD and Honda is -0.42. Overlapping area represents the amount of risk that can be diversified away by holding ECD Automotive Design and Honda Motor Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Honda Motor and ECD Automotive 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 ECD Automotive Design 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 ECD Automotive i.e., ECD Automotive and Honda go up and down completely randomly.

Pair Corralation between ECD Automotive and Honda

Given the investment horizon of 90 days ECD Automotive Design is expected to under-perform the Honda. In addition to that, ECD Automotive is 2.91 times more volatile than Honda Motor Co. It trades about -0.07 of its total potential returns per unit of risk. Honda Motor Co is currently generating about 0.07 per unit of volatility. If you would invest  2,837  in Honda Motor Co on December 26, 2024 and sell it today you would earn a total of  176.00  from holding Honda Motor Co or generate 6.2% return on investment over 90 days.

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

ECD Automotive Design  vs.  Honda Motor Co

ECD Automotive Design

Risk-Adjusted Performance

Very Weak

Over the last 90 days ECD Automotive Design has generated negative risk-adjusted returns adding no value to investors with long positions. Despite uncertain performance in the last few months, the Stock's fundamental indicators remain somewhat strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Honda Motor

Risk-Adjusted Performance

Modest

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. In spite of rather unfluctuating primary indicators, Honda may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with ECD Automotive and Honda

The main advantage of trading using opposite ECD Automotive and Honda positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if ECD Automotive 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 ECD Automotive Design 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.