Correlation Between Honda and Xpeng

Can any of the company-specific risk be diversified away by investing in both Honda and Xpeng 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 Xpeng 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 Xpeng Inc, you can compare the effects of market volatilities on Honda and Xpeng 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 Xpeng. Check out your portfolio center. Please also check ongoing floating volatility patterns of Honda and Xpeng.

Diversification Opportunities for Honda and Xpeng

-0.53

Correlation Coefficient

Honda  Xpeng

Excellent diversification

The 3 months correlation between Honda and Xpeng is -0.53. Overlapping area represents the amount of risk that can be diversified away by holding Honda Motor Co and Xpeng Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Xpeng Inc 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 Xpeng. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Xpeng Inc has no effect on the direction of Honda i.e., Honda and Xpeng go up and down completely randomly.

Pair Corralation between Honda and Xpeng

Considering the 90-day investment horizon Honda Motor Co is expected to under-perform the Xpeng. But the stock apears to be less risky and, when comparing its historical volatility, Honda Motor Co is 2.83 times less risky than Xpeng. The stock trades about -0.18 of its potential returns per unit of risk. The Xpeng Inc is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  837.00  in Xpeng Inc on September 1, 2024 and sell it today you would earn a total of  368.00  from holding Xpeng Inc or generate 43.97% return on investment over 90 days.

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

Honda Motor Co  vs.  Xpeng Inc

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. In spite of unfluctuating performance in the last few months, the Stock's primary indicators remain rather sound which may send shares a bit higher in December 2024. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Xpeng Inc

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Xpeng Inc are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak technical and fundamental indicators, Xpeng showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Honda and Xpeng

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

The idea behind Honda Motor Co and Xpeng Inc 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.