Correlation Between Honda and Infosys

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

Diversification Opportunities for Honda and Infosys

-0.48

Correlation Coefficient

Honda  Infosys

Very good diversification

The 3 months correlation between Honda and Infosys is -0.48. Overlapping area represents the amount of risk that can be diversified away by holding Honda Motor Co and Infosys Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Infosys Limited 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 Infosys. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Infosys Limited has no effect on the direction of Honda i.e., Honda and Infosys go up and down completely randomly.

Pair Corralation between Honda and Infosys

Assuming the 90 days trading horizon Honda Motor Co is expected to under-perform the Infosys. But the stock apears to be less risky and, when comparing its historical volatility, Honda Motor Co is 1.05 times less risky than Infosys. The stock trades about -0.07 of its potential returns per unit of risk. The Infosys Limited is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  6,500  in Infosys Limited on September 12, 2024 and sell it today you would earn a total of  584.00  from holding Infosys Limited or generate 8.98% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	96.77%
Values	Daily Returns

Honda Motor Co  vs.  Infosys Limited

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 latest uncertain performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Infosys Limited

Risk-Adjusted Performance

6 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Infosys Limited are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak technical and fundamental indicators, Infosys may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Honda and Infosys

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

The idea behind Honda Motor Co and Infosys Limited 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.