Correlation Between General Electric and Honda

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

Diversification Opportunities for General Electric and Honda

  Correlation Coefficient

Almost no diversification

The 3 months correlation between General and Honda is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding General Electric and Honda Motor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Honda Motor and General Electric 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 General Electric 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 General Electric i.e., General Electric and Honda go up and down completely randomly.

Pair Corralation between General Electric and Honda

Allowing for the 90-day total investment horizon General Electric is expected to under-perform the Honda. In addition to that, General Electric is 1.32 times more volatile than Honda Motor. It trades about -0.4 of its total potential returns per unit of risk. Honda Motor is currently generating about -0.39 per unit of volatility. If you would invest  2,634  in Honda Motor on June 27, 2022 and sell it today you would lose (282.00)  from holding Honda Motor or give up 10.71% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Strong
ValuesDaily Returns

General Electric  vs.  Honda Motor

 Performance (%) 
General Electric 
General Performance
0 of 100
Over the last 90 days General Electric has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, General Electric is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

General Price Channel

Honda Motor 
Honda Performance
0 of 100
Over the last 90 days Honda Motor has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong primary indicators, Honda is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Honda Price Channel

General Electric and Honda Volatility Contrast

   Predicted Return Density   

Pair Trading with General Electric and Honda

The main advantage of trading using opposite General Electric and Honda positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if General Electric 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.
General Electric vs. Industrias Bachoco SA
The idea behind General Electric and Honda 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.
Honda vs. Industrias Bachoco SA
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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.

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