Correlation Between Honda and Marathon Oil

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

Diversification Opportunities for Honda and Marathon Oil

-0.32

Correlation Coefficient

Honda  Marathon Oil

Very good diversification

The 3 months correlation between Honda and Marathon is -0.32. Overlapping area represents the amount of risk that can be diversified away by holding Honda Motor Co and Marathon Oil in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Marathon Oil 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 Marathon Oil. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Marathon Oil has no effect on the direction of Honda i.e., Honda and Marathon Oil go up and down completely randomly.

Pair Corralation between Honda and Marathon Oil

Assuming the 90 days trading horizon Honda Motor Co is expected to under-perform the Marathon Oil. But the stock apears to be less risky and, when comparing its historical volatility, Honda Motor Co is 1.12 times less risky than Marathon Oil. The stock trades about -0.08 of its potential returns per unit of risk. The Marathon Oil is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  14,976  in Marathon Oil on September 17, 2024 and sell it today you would earn a total of  2,039  from holding Marathon Oil or generate 13.62% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	74.6%
Values	Daily Returns

Honda Motor Co  vs.  Marathon Oil

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 weak 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.

Marathon Oil

Risk-Adjusted Performance

0 of 100

Good

Over the last 90 days Marathon Oil has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat weak basic indicators, Marathon Oil sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Honda and Marathon Oil

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

The idea behind Honda Motor Co and Marathon Oil 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.