Correlation Between Ford and Honda

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

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

Diversification Opportunities for Ford and Honda

-0.29

Correlation Coefficient

Ford  Honda

Very good diversification

The 3 months correlation between Ford and Honda is -0.29. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and Honda Motor Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Honda Motor and Ford 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 Ford Motor 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 Ford i.e., Ford and Honda go up and down completely randomly.

Pair Corralation between Ford and Honda

Taking into account the 90-day investment horizon Ford Motor is expected to generate 0.92 times more return on investment than Honda. However, Ford Motor is 1.08 times less risky than Honda. It trades about 0.04 of its potential returns per unit of risk. Honda Motor Co is currently generating about -0.06 per unit of risk. If you would invest  934.00  in Ford Motor on December 2, 2024 and sell it today you would earn a total of  21.00  from holding Ford Motor or generate 2.25% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	93.02%
Values	Daily Returns

Ford Motor  vs.  Honda Motor Co

Ford Motor

Risk-Adjusted Performance

Very Weak

Over the last 90 days Ford Motor has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unfluctuating performance, the Stock's technical and fundamental indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Honda Motor

Risk-Adjusted Performance

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 Ford and Honda

The main advantage of trading using opposite Ford and Honda positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ford 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 Ford Motor 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 Global Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.