Correlation Between Honda and Ford

Specify exactly 2 symbols:
Can any of the company-specific risk be diversified away by investing in both Honda and Ford 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 Honda and Ford into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Honda Motor Co and Ford Motor, you can compare the effects of market volatilities on Honda and Ford 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 Honda with a short position of Ford. Check out your portfolio center. Please also check ongoing floating volatility patterns of Honda and Ford.

Diversification Opportunities for Honda and Ford

0.7
  Correlation Coefficient

Poor diversification

The 3 months correlation between Honda and Ford is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Honda Motor Co and Ford Motor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ford Motor and Honda 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 Honda Motor Co are associated (or correlated) with Ford. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ford Motor has no effect on the direction of Honda i.e., Honda and Ford go up and down completely randomly.

Pair Corralation between Honda and Ford

Considering the 90-day investment horizon Honda is expected to generate 1.53 times less return on investment than Ford. But when comparing it to its historical volatility, Honda Motor Co is 1.86 times less risky than Ford. It trades about 0.24 of its potential returns per unit of risk. Ford Motor is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest  1,200  in Ford Motor on December 29, 2023 and sell it today you would earn a total of  106.00  from holding Ford Motor or generate 8.83% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

Honda Motor Co  vs.  Ford Motor

 Performance 
       Timeline  
Honda Motor 

Risk-Adjusted Performance

20 of 100

 
Low
 
High
Solid
Compared to the overall equity markets, risk-adjusted returns on investments in Honda Motor Co are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak primary indicators, Honda exhibited solid returns over the last few months and may actually be approaching a breakup point.
Ford Motor 

Risk-Adjusted Performance

6 of 100

 
Low
 
High
Modest
Compared to the overall equity markets, risk-adjusted returns on investments in Ford Motor are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak technical and fundamental indicators, Ford may actually be approaching a critical reversion point that can send shares even higher in April 2024.

Honda and Ford Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Honda and Ford

The main advantage of trading using opposite Honda and Ford positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Honda position performs unexpectedly, Ford 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 Ford will offset losses from the drop in Ford's long position.
The idea behind Honda Motor Co and Ford Motor 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.

Other Complementary Tools

Insider Screener
Find insiders across different sectors to evaluate their impact on performance
Alpha Finder
Use alpha and beta coefficients to find investment opportunities after accounting for the risk
Portfolio Diagnostics
Use generated alerts and portfolio events aggregator to diagnose current holdings
Balance Of Power
Check stock momentum by analyzing Balance Of Power indicator and other technical ratios
Technical Analysis
Check basic technical indicators and analysis based on most latest market data