Correlation Between Honda and Lucid

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

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

Diversification Opportunities for Honda and Lucid

0.5

Correlation Coefficient

Honda  Lucid

Very weak diversification

The 3 months correlation between Honda and Lucid is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding Honda Motor Co and Lucid Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lucid Group and Honda 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 Honda Motor Co are associated (or correlated) with Lucid. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lucid Group has no effect on the direction of Honda i.e., Honda and Lucid go up and down completely randomly.

Pair Corralation between Honda and Lucid

Considering the 90-day investment horizon Honda is expected to generate 4.14 times less return on investment than Lucid. But when comparing it to its historical volatility, Honda Motor Co is 2.02 times less risky than Lucid. It trades about 0.04 of its potential returns per unit of risk. Lucid Group is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  218.00  in Lucid Group on November 28, 2024 and sell it today you would earn a total of  43.00  from holding Lucid Group or generate 19.72% return on investment over 90 days.

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

Honda Motor Co  vs.  Lucid Group

Honda Motor

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Honda Motor Co are ranked lower than 3 (%) 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 March 2025.

Lucid Group

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Lucid Group are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of rather unfluctuating forward indicators, Lucid exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Honda and Lucid

The main advantage of trading using opposite Honda and Lucid positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Honda position performs unexpectedly, Lucid 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 Lucid will offset losses from the drop in Lucid's long position.

The idea behind Honda Motor Co and Lucid Group 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.

Check out your portfolio center.

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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.