Correlation Between Honda and Mosaic

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

Diversification Opportunities for Honda and Mosaic

-0.39

Correlation Coefficient

Honda  Mosaic

Very good diversification

The 3 months correlation between Honda and Mosaic is -0.39. Overlapping area represents the amount of risk that can be diversified away by holding Honda Motor Co and The Mosaic in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mosaic 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 Mosaic. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Mosaic has no effect on the direction of Honda i.e., Honda and Mosaic go up and down completely randomly.

Pair Corralation between Honda and Mosaic

Assuming the 90 days trading horizon Honda Motor Co is expected to under-perform the Mosaic. In addition to that, Honda is 1.15 times more volatile than The Mosaic. It trades about -0.02 of its total potential returns per unit of risk. The Mosaic is currently generating about 0.0 per unit of volatility. If you would invest  2,552  in The Mosaic on September 26, 2024 and sell it today you would lose (52.00) from holding The Mosaic or give up 2.04% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Honda Motor Co  vs.  The Mosaic

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 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.

Mosaic

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in The Mosaic are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Mosaic may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Honda and Mosaic

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

The idea behind Honda Motor Co and The Mosaic 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.