Correlation Between Renault SA and Honda

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

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

Diversification Opportunities for Renault SA and Honda

0.07

Correlation Coefficient

Renault SA  Honda

Significant diversification

The 3 months correlation between Renault and Honda is 0.07. Overlapping area represents the amount of risk that can be diversified away by holding Renault SA and Honda Motor Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Honda Motor and Renault SA 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 Renault SA 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 Renault SA i.e., Renault SA and Honda go up and down completely randomly.

Pair Corralation between Renault SA and Honda

Assuming the 90 days horizon Renault SA is expected to generate 1.89 times more return on investment than Honda. However, Renault SA is 1.89 times more volatile than Honda Motor Co. It trades about 0.04 of its potential returns per unit of risk. Honda Motor Co is currently generating about 0.04 per unit of risk. If you would invest  3,893  in Renault SA on October 3, 2024 and sell it today you would earn a total of  947.00  from holding Renault SA or generate 24.33% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	63.84%
Values	Daily Returns

Renault SA  vs.  Honda Motor Co

Renault SA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Renault SA has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable fundamental indicators, Renault SA is not utilizing all of its potentials. The recent stock price disturbance, may contribute to mid-run losses for the stockholders.

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. In spite of latest unfluctuating performance, the Stock's primary indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Pair Trading with Renault SA and Honda

The main advantage of trading using opposite Renault SA and Honda positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Renault SA 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 Renault SA 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.

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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 Portfolio File Import module to quickly import all of your third-party portfolios from your local drive in csv format.