Correlation Between Honda and Microsoft Corp

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

Diversification Opportunities for Honda and Microsoft Corp

0.76
  Correlation Coefficient

Poor diversification

The 3 months correlation between Honda and Microsoft is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Honda Motor and Microsoft Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Microsoft Corp 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 are associated (or correlated) with Microsoft Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Microsoft Corp has no effect on the direction of Honda i.e., Honda and Microsoft Corp go up and down completely randomly.

Pair Corralation between Honda and Microsoft Corp

Considering the 90-day investment horizon Honda Motor is expected to generate 0.79 times more return on investment than Microsoft Corp. However, Honda Motor is 1.26 times less risky than Microsoft Corp. It trades about -0.03 of its potential returns per unit of risk. Microsoft Corp is currently generating about -0.03 per unit of risk. If you would invest  2,869  in Honda Motor on September 1, 2022 and sell it today you would lose (419.00)  from holding Honda Motor or give up 14.6% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

Honda Motor  vs.  Microsoft Corp

 Performance (%) 
       Timeline  
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

Microsoft Corp 
Microsoft Performance
0 of 100
Over the last 90 days Microsoft Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable technical and fundamental indicators, Microsoft Corp is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Microsoft Price Channel

Honda and Microsoft Corp Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Honda and Microsoft Corp

The main advantage of trading using opposite Honda and Microsoft Corp positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Honda position performs unexpectedly, Microsoft Corp 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 Microsoft Corp will offset losses from the drop in Microsoft Corp's long position.
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The idea behind Honda Motor and Microsoft Corp 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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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 Stock Tickers module to use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites.

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