Correlation Between Honda and Elektro Redes

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

Diversification Opportunities for Honda and Elektro Redes

-0.5

Correlation Coefficient

Honda  Elektro Redes

Very good diversification

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

Pair Corralation between Honda and Elektro Redes

Assuming the 90 days trading horizon Honda is expected to generate 9.58 times less return on investment than Elektro Redes. But when comparing it to its historical volatility, Honda Motor Co is 1.4 times less risky than Elektro Redes. It trades about 0.01 of its potential returns per unit of risk. Elektro Redes SA is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  4,369  in Elektro Redes SA on September 27, 2024 and sell it today you would earn a total of  731.00  from holding Elektro Redes SA or generate 16.73% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	96.72%
Values	Daily Returns

Honda Motor Co  vs.  Elektro Redes 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 newest stock price disturbance, may contribute to short-term losses for the investors.

Elektro Redes SA

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Elektro Redes SA are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Elektro Redes unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Honda and Elektro Redes

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

The idea behind Honda Motor Co and Elektro Redes 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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.