Correlation Between Seagate Technology and Honda

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

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

Diversification Opportunities for Seagate Technology and Honda

-0.35

Correlation Coefficient

Seagate Technology  Honda

Very good diversification

The 3 months correlation between Seagate and Honda is -0.35. Overlapping area represents the amount of risk that can be diversified away by holding Seagate Technology Holdings and Honda Motor Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Honda Motor and Seagate Technology 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 Seagate Technology Holdings 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 Seagate Technology i.e., Seagate Technology and Honda go up and down completely randomly.

Pair Corralation between Seagate Technology and Honda

Assuming the 90 days trading horizon Seagate Technology Holdings is expected to under-perform the Honda. In addition to that, Seagate Technology is 1.53 times more volatile than Honda Motor Co. It trades about -0.02 of its total potential returns per unit of risk. Honda Motor Co is currently generating about -0.01 per unit of volatility. If you would invest  17,568  in Honda Motor Co on December 24, 2024 and sell it today you would lose (408.00) from holding Honda Motor Co or give up 2.32% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.33%
Values	Daily Returns

Seagate Technology Holdings  vs.  Honda Motor Co

Seagate Technology

Risk-Adjusted Performance

Very Weak

Over the last 90 days Seagate Technology Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Seagate Technology 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

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 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.

Pair Trading with Seagate Technology and Honda

The main advantage of trading using opposite Seagate Technology and Honda positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Seagate Technology 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 Seagate Technology Holdings 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.