Correlation Between Honda and Worksport

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

Diversification Opportunities for Honda and Worksport

-0.61

Correlation Coefficient

Honda  Worksport

Excellent diversification

The 3 months correlation between Honda and Worksport is -0.61. Overlapping area represents the amount of risk that can be diversified away by holding Honda Motor Co and Worksport in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Worksport 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 Worksport. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Worksport has no effect on the direction of Honda i.e., Honda and Worksport go up and down completely randomly.

Pair Corralation between Honda and Worksport

Considering the 90-day investment horizon Honda is expected to generate 6.16 times less return on investment than Worksport. But when comparing it to its historical volatility, Honda Motor Co is 2.42 times less risky than Worksport. It trades about 0.09 of its potential returns per unit of risk. Worksport is currently generating about 0.23 of returns per unit of risk over similar time horizon. If you would invest  61.00  in Worksport on September 27, 2024 and sell it today you would earn a total of  23.00  from holding Worksport or generate 37.7% return on investment over 90 days.

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

Honda Motor Co  vs.  Worksport

Honda Motor

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Honda Motor Co has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unfluctuating performance in the last few months, the Stock's primary indicators remain rather sound which may send shares a bit higher in January 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Worksport

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Worksport are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Even with relatively fragile basic indicators, Worksport reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Honda and Worksport

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

The idea behind Honda Motor Co and Worksport 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.