Correlation Between Honda and Prudential Plc

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

Diversification Opportunities for Honda and Prudential Plc

-0.63

Correlation Coefficient

Honda  Prudential Plc

Excellent diversification

The 3 months correlation between Honda and Prudential is -0.63. Overlapping area represents the amount of risk that can be diversified away by holding Honda Motor Co and Prudential plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Prudential plc 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 Prudential Plc. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Prudential plc has no effect on the direction of Honda i.e., Honda and Prudential Plc go up and down completely randomly.

Pair Corralation between Honda and Prudential Plc

Assuming the 90 days trading horizon Honda Motor Co is expected to generate 0.61 times more return on investment than Prudential Plc. However, Honda Motor Co is 1.64 times less risky than Prudential Plc. It trades about 0.05 of its potential returns per unit of risk. Prudential plc is currently generating about 0.01 per unit of risk. If you would invest  11,750  in Honda Motor Co on September 27, 2024 and sell it today you would earn a total of  5,818  from holding Honda Motor Co or generate 49.51% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	71.4%
Values	Daily Returns

Honda Motor Co  vs.  Prudential plc

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.

Prudential plc

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Prudential plc are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Prudential Plc is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Honda and Prudential Plc

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

The idea behind Honda Motor Co and Prudential plc 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.