Correlation Between Volkswagen and Honda

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

By analyzing existing cross correlation between Volkswagen AG 110 and Honda Motor Co, you can compare the effects of market volatilities on Volkswagen 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 Volkswagen with a short position of Honda. Check out your portfolio center. Please also check ongoing floating volatility patterns of Volkswagen and Honda.

Diversification Opportunities for Volkswagen and Honda

0.43

Correlation Coefficient

Volkswagen  Honda

Very weak diversification

The 3 months correlation between Volkswagen and Honda is 0.43. Overlapping area represents the amount of risk that can be diversified away by holding Volkswagen AG 110 and Honda Motor Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Honda Motor and Volkswagen 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 Volkswagen AG 110 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 Volkswagen i.e., Volkswagen and Honda go up and down completely randomly.

Pair Corralation between Volkswagen and Honda

Assuming the 90 days horizon Volkswagen AG 110 is expected to generate 0.68 times more return on investment than Honda. However, Volkswagen AG 110 is 1.47 times less risky than Honda. It trades about 0.25 of its potential returns per unit of risk. Honda Motor Co is currently generating about 0.06 per unit of risk. If you would invest  865.00  in Volkswagen AG 110 on December 1, 2024 and sell it today you would earn a total of  235.00  from holding Volkswagen AG 110 or generate 27.17% return on investment over 90 days.

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

Volkswagen AG 110  vs.  Honda Motor Co

Volkswagen AG 110

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Volkswagen AG 110 are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak technical and fundamental indicators, Volkswagen showed solid returns over the last few months and may actually be approaching a breakup point.

Honda Motor

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Honda Motor Co are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of rather unfluctuating primary indicators, Honda may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Volkswagen and Honda

The main advantage of trading using opposite Volkswagen and Honda positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Volkswagen 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 Volkswagen AG 110 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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.