Correlation Between Honda and Grendene

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

Diversification Opportunities for Honda and Grendene

-0.34

Correlation Coefficient

Honda  Grendene

Very good diversification

The 3 months correlation between Honda and Grendene is -0.34. Overlapping area represents the amount of risk that can be diversified away by holding Honda Motor Co and Grendene SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Grendene 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 Grendene. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Grendene SA has no effect on the direction of Honda i.e., Honda and Grendene go up and down completely randomly.

Pair Corralation between Honda and Grendene

Assuming the 90 days trading horizon Honda Motor Co is expected to generate 1.62 times more return on investment than Grendene. However, Honda is 1.62 times more volatile than Grendene SA. It trades about 0.21 of its potential returns per unit of risk. Grendene SA is currently generating about -0.11 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 Against
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Honda Motor Co  vs.  Grendene 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.

Grendene SA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Grendene SA has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Grendene is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Honda and Grendene

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

The idea behind Honda Motor Co and Grendene 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.