Correlation Between Honda and Cisco Systems

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

Diversification Opportunities for Honda and Cisco Systems

-0.68

Correlation Coefficient

Honda  Cisco Systems

Excellent diversification

The 3 months correlation between Honda and Cisco is -0.68. Overlapping area represents the amount of risk that can be diversified away by holding Honda Motor Co and Cisco Systems in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cisco Systems 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 Cisco Systems. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cisco Systems has no effect on the direction of Honda i.e., Honda and Cisco Systems go up and down completely randomly.

Pair Corralation between Honda and Cisco Systems

Assuming the 90 days trading horizon Honda Motor Co is expected to under-perform the Cisco Systems. In addition to that, Honda is 1.14 times more volatile than Cisco Systems. It trades about -0.16 of its total potential returns per unit of risk. Cisco Systems is currently generating about 0.23 per unit of volatility. If you would invest  5,621  in Cisco Systems on August 30, 2024 and sell it today you would earn a total of  1,434  from holding Cisco Systems or generate 25.51% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	98.41%
Values	Daily Returns

Honda Motor Co  vs.  Cisco Systems

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. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in December 2024. The current disturbance may also be a sign of long term up-swing for the company investors.

Cisco Systems

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Cisco Systems are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak fundamental indicators, Cisco Systems sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Honda and Cisco Systems

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

The idea behind Honda Motor Co and Cisco Systems 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.