Correlation Between Honda and Oracle

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

Diversification Opportunities for Honda and Oracle

-0.75

Correlation Coefficient

Honda  Oracle

Pay attention - limited upside

The 3 months correlation between Honda and Oracle is -0.75. Overlapping area represents the amount of risk that can be diversified away by holding Honda Motor Co and Oracle in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Oracle 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 Oracle. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Oracle has no effect on the direction of Honda i.e., Honda and Oracle go up and down completely randomly.

Pair Corralation between Honda and Oracle

Assuming the 90 days trading horizon Honda is expected to generate 4.17 times less return on investment than Oracle. In addition to that, Honda is 1.0 times more volatile than Oracle. It trades about 0.03 of its total potential returns per unit of risk. Oracle is currently generating about 0.12 per unit of volatility. If you would invest  12,655  in Oracle on October 7, 2024 and sell it today you would earn a total of  4,575  from holding Oracle or generate 36.15% return on investment over 90 days.

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

Honda Motor Co  vs.  Oracle

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.

Oracle

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Oracle are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak fundamental indicators, Oracle sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Honda and Oracle

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

The idea behind Honda Motor Co and Oracle 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 Funds Screener module to find actively-traded funds from around the world traded on over 30 global exchanges.