Correlation Between Honda and Bicicletas Monark

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

Diversification Opportunities for Honda and Bicicletas Monark

0.25

Correlation Coefficient

Honda  Bicicletas Monark

Modest diversification

The 3 months correlation between Honda and Bicicletas is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding Honda Motor Co and Bicicletas Monark SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bicicletas Monark 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 Bicicletas Monark. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bicicletas Monark has no effect on the direction of Honda i.e., Honda and Bicicletas Monark go up and down completely randomly.

Pair Corralation between Honda and Bicicletas Monark

Assuming the 90 days trading horizon Honda Motor Co is expected to generate 2.55 times more return on investment than Bicicletas Monark. However, Honda is 2.55 times more volatile than Bicicletas Monark SA. It trades about 0.21 of its potential returns per unit of risk. Bicicletas Monark SA is currently generating about 0.31 per unit of risk. If you would invest  15,402  in Honda Motor Co on October 6, 2024 and sell it today you would earn a total of  2,346  from holding Honda Motor Co or generate 15.23% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	94.74%
Values	Daily Returns

Honda Motor Co  vs.  Bicicletas Monark SA

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 current stock price disturbance, may contribute to short-term losses for the investors.

Bicicletas Monark

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Bicicletas Monark SA are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Bicicletas Monark may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Honda and Bicicletas Monark

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

The idea behind Honda Motor Co and Bicicletas Monark SA 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..