Correlation Between Honda and Fiat Chrysler

Can any of the company-specific risk be diversified away by investing in both Honda and Fiat Chrysler 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 Fiat Chrysler 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 Fiat Chrysler Automobiles, you can compare the effects of market volatilities on Honda and Fiat Chrysler 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 Fiat Chrysler. Check out your portfolio center. Please also check ongoing floating volatility patterns of Honda and Fiat Chrysler.

Diversification Opportunities for Honda and Fiat Chrysler

0.0

Correlation Coefficient

Honda  Fiat Chrysler

Pay attention - limited upside

The 3 months correlation between Honda and Fiat is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding Honda Motor Co and Fiat Chrysler Automobiles in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fiat Chrysler Automobiles 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 Fiat Chrysler. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fiat Chrysler Automobiles has no effect on the direction of Honda i.e., Honda and Fiat Chrysler go up and down completely randomly.

Pair Corralation between Honda and Fiat Chrysler

If you would invest  2,252  in Honda Motor Co on January 25, 2024 and sell it today you would earn a total of  1,189  from holding Honda Motor Co or generate 52.8% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Flat
Strength	Insignificant
Accuracy	0.0%
Values	Daily Returns

Honda Motor Co  vs.  Fiat Chrysler Automobiles

Honda Motor

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Honda Motor Co are ranked lower than 7 (%) 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 May 2024.

Fiat Chrysler Automobiles

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Fiat Chrysler Automobiles has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Fiat Chrysler is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Honda and Fiat Chrysler

The main advantage of trading using opposite Honda and Fiat Chrysler positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Honda position performs unexpectedly, Fiat Chrysler 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 Fiat Chrysler will offset losses from the drop in Fiat Chrysler's long position.

The idea behind Honda Motor Co and Fiat Chrysler Automobiles 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .