Correlation Between Ferrari NV and Hino Motors

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

By analyzing existing cross correlation between Ferrari NV and Hino Motors Ltd, you can compare the effects of market volatilities on Ferrari NV and Hino Motors 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 Ferrari NV with a short position of Hino Motors. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ferrari NV and Hino Motors.

Diversification Opportunities for Ferrari NV and Hino Motors

0.64

Correlation Coefficient

Ferrari NV  Hino Motors

Poor diversification

The 3 months correlation between Ferrari and Hino is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Ferrari NV and Hino Motors Ltd in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hino Motors and Ferrari NV 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 Ferrari NV are associated (or correlated) with Hino Motors. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hino Motors has no effect on the direction of Ferrari NV i.e., Ferrari NV and Hino Motors go up and down completely randomly.

Pair Corralation between Ferrari NV and Hino Motors

Given the investment horizon of 90 days Ferrari NV is expected to generate 1.48 times more return on investment than Hino Motors. However, Ferrari NV is 1.48 times more volatile than Hino Motors Ltd. It trades about 0.2 of its potential returns per unit of risk. Hino Motors Ltd is currently generating about 0.29 per unit of risk. If you would invest  43,498  in Ferrari NV on September 17, 2024 and sell it today you would earn a total of  1,920  from holding Ferrari NV or generate 4.41% return on investment over 90 days.

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

Ferrari NV  vs.  Hino Motors Ltd

Ferrari NV

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Ferrari NV has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound fundamental indicators, Ferrari NV is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Hino Motors

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Hino Motors Ltd has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest fragile 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 Ferrari NV and Hino Motors

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

The idea behind Ferrari NV and Hino Motors Ltd 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.