Correlation Between Ross Stores and Honda

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

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

Diversification Opportunities for Ross Stores and Honda

-0.19

Correlation Coefficient

Ross Stores  Honda

Good diversification

The 3 months correlation between Ross and Honda is -0.19. Overlapping area represents the amount of risk that can be diversified away by holding Ross Stores and Honda Motor Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Honda Motor and Ross Stores 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 Ross Stores 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 Ross Stores i.e., Ross Stores and Honda go up and down completely randomly.

Pair Corralation between Ross Stores and Honda

Assuming the 90 days trading horizon Ross Stores is expected to generate 0.78 times more return on investment than Honda. However, Ross Stores is 1.28 times less risky than Honda. It trades about 0.07 of its potential returns per unit of risk. Honda Motor Co is currently generating about 0.05 per unit of risk. If you would invest  29,010  in Ross Stores on October 23, 2024 and sell it today you would earn a total of  15,880  from holding Ross Stores or generate 54.74% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	92.45%
Values	Daily Returns

Ross Stores  vs.  Honda Motor Co

Ross Stores

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Ross Stores are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Ross Stores may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Honda Motor

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Honda Motor Co are ranked lower than 1 (%) 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 newest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Ross Stores and Honda

The main advantage of trading using opposite Ross Stores and Honda positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ross Stores 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 Ross Stores 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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.