Correlation Between Honda and BlackRock

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

Diversification Opportunities for Honda and BlackRock

-0.8

Correlation Coefficient

Honda  BlackRock

Pay attention - limited upside

The 3 months correlation between Honda and BlackRock is -0.8. Overlapping area represents the amount of risk that can be diversified away by holding Honda Motor Co and BlackRock in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BlackRock 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 BlackRock. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BlackRock has no effect on the direction of Honda i.e., Honda and BlackRock go up and down completely randomly.

Pair Corralation between Honda and BlackRock

Assuming the 90 days trading horizon Honda Motor Co is expected to generate 1.99 times more return on investment than BlackRock. However, Honda is 1.99 times more volatile than BlackRock. It trades about 0.21 of its potential returns per unit of risk. BlackRock is currently generating about 0.25 per unit of risk. If you would invest  15,090  in Honda Motor Co on September 27, 2024 and sell it today you would earn a total of  2,478  from holding Honda Motor Co or generate 16.42% return on investment over 90 days.

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

Honda Motor Co  vs.  BlackRock

Honda Motor

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Honda Motor Co are ranked lower than 1 (%) 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 newest stock price disturbance, may contribute to short-term losses for the investors.

BlackRock

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in BlackRock are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, BlackRock sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Honda and BlackRock

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

The idea behind Honda Motor Co and BlackRock 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.