Correlation Between Honda and Otis Worldwide

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

Diversification Opportunities for Honda and Otis Worldwide

-0.27

Correlation Coefficient

Honda  Otis Worldwide

Very good diversification

The 3 months correlation between Honda and Otis is -0.27. Overlapping area represents the amount of risk that can be diversified away by holding Honda Motor Co and Otis Worldwide in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Otis Worldwide 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 Otis Worldwide. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Otis Worldwide has no effect on the direction of Honda i.e., Honda and Otis Worldwide go up and down completely randomly.

Pair Corralation between Honda and Otis Worldwide

Assuming the 90 days trading horizon Honda Motor Co is expected to generate 2.49 times more return on investment than Otis Worldwide. However, Honda is 2.49 times more volatile than Otis Worldwide. It trades about 0.03 of its potential returns per unit of risk. Otis Worldwide is currently generating about -0.1 per unit of risk. If you would invest  15,840  in Honda Motor Co on December 2, 2024 and sell it today you would earn a total of  528.00  from holding Honda Motor Co or generate 3.33% 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.  Otis Worldwide

Honda Motor

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Honda Motor Co are ranked lower than 2 (%) 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.

Otis Worldwide

Risk-Adjusted Performance

Very Weak

Over the last 90 days Otis Worldwide 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.

Pair Trading with Honda and Otis Worldwide

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

The idea behind Honda Motor Co and Otis Worldwide 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.