Correlation Between Honda and MetLife

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

Diversification Opportunities for Honda and MetLife

-0.36

Correlation Coefficient

Honda  MetLife

Very good diversification

The 3 months correlation between Honda and MetLife is -0.36. Overlapping area represents the amount of risk that can be diversified away by holding Honda Motor Co and MetLife in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MetLife 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 MetLife. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MetLife has no effect on the direction of Honda i.e., Honda and MetLife go up and down completely randomly.

Pair Corralation between Honda and MetLife

Assuming the 90 days trading horizon Honda is expected to generate 1.33 times less return on investment than MetLife. But when comparing it to its historical volatility, Honda Motor Co is 1.23 times less risky than MetLife. It trades about 0.05 of its potential returns per unit of risk. MetLife is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  34,927  in MetLife on October 15, 2024 and sell it today you would earn a total of  16,036  from holding MetLife or generate 45.91% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	71.08%
Values	Daily Returns

Honda Motor Co  vs.  MetLife

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.

MetLife

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in MetLife are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat uncertain basic indicators, MetLife may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Honda and MetLife

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

The idea behind Honda Motor Co and MetLife 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.

Check out your portfolio center.

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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.