Correlation Between Mazda and Honda

Can any of the company-specific risk be diversified away by investing in both Mazda and Honda 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 Mazda and Honda into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Mazda Motor Corp and Honda Motor Co, you can compare the effects of market volatilities on Mazda and Honda 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 Mazda with a short position of Honda. Check out your portfolio center. Please also check ongoing floating volatility patterns of Mazda and Honda.

Diversification Opportunities for Mazda and Honda

0.91

Correlation Coefficient

Mazda  Honda

Almost no diversification

The 3 months correlation between Mazda and Honda is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding Mazda Motor Corp and Honda Motor Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Honda Motor and Mazda 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 Mazda Motor Corp are associated (or correlated) with Honda. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Honda Motor has no effect on the direction of Mazda i.e., Mazda and Honda go up and down completely randomly.

Pair Corralation between Mazda and Honda

Assuming the 90 days horizon Mazda is expected to generate 1382.11 times less return on investment than Honda. But when comparing it to its historical volatility, Mazda Motor Corp is 25.55 times less risky than Honda. It trades about 0.0 of its potential returns per unit of risk. Honda Motor Co is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  698.00  in Honda Motor Co on October 10, 2024 and sell it today you would earn a total of  352.00  from holding Honda Motor Co or generate 50.43% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	87.88%
Values	Daily Returns

Mazda Motor Corp  vs.  Honda Motor Co

Mazda Motor Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Mazda Motor Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, Mazda is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

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 nearly stable basic indicators, Honda is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Mazda and Honda

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

The idea behind Mazda Motor Corp and Honda Motor Co 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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.