Correlation Between Honda and Paranapanema

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

Diversification Opportunities for Honda and Paranapanema

0.51

Correlation Coefficient

Honda  Paranapanema

Very weak diversification

The 3 months correlation between Honda and Paranapanema is 0.51. Overlapping area represents the amount of risk that can be diversified away by holding Honda Motor Co and Paranapanema SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Paranapanema SA 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 Paranapanema. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Paranapanema SA has no effect on the direction of Honda i.e., Honda and Paranapanema go up and down completely randomly.

Pair Corralation between Honda and Paranapanema

Assuming the 90 days trading horizon Honda is expected to generate 4.53 times less return on investment than Paranapanema. But when comparing it to its historical volatility, Honda Motor Co is 3.04 times less risky than Paranapanema. It trades about 0.03 of its potential returns per unit of risk. Paranapanema SA is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  100.00  in Paranapanema SA on December 2, 2024 and sell it today you would earn a total of  7.00  from holding Paranapanema SA or generate 7.0% return on investment over 90 days.

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

Honda Motor Co  vs.  Paranapanema SA

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.

Paranapanema SA

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Paranapanema SA are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Paranapanema unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Honda and Paranapanema

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

The idea behind Honda Motor Co and Paranapanema SA 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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..