Correlation Between Honda and Karsten SA

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

Diversification Opportunities for Honda and Karsten SA

-0.64

Correlation Coefficient

Honda  Karsten SA

Excellent diversification

The 3 months correlation between Honda and Karsten is -0.64. Overlapping area represents the amount of risk that can be diversified away by holding Honda Motor Co and Karsten SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Karsten SA 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 Karsten SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Karsten SA has no effect on the direction of Honda i.e., Honda and Karsten SA go up and down completely randomly.

Pair Corralation between Honda and Karsten SA

Assuming the 90 days trading horizon Honda Motor Co is expected to under-perform the Karsten SA. But the stock apears to be less risky and, when comparing its historical volatility, Honda Motor Co is 1.61 times less risky than Karsten SA. The stock trades about -0.16 of its potential returns per unit of risk. The Karsten SA is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  1,900  in Karsten SA on September 23, 2024 and sell it today you would earn a total of  161.00  from holding Karsten SA or generate 8.47% 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.  Karsten SA

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. Despite uncertain performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Karsten SA

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Karsten SA are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Karsten SA may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Honda and Karsten SA

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

The idea behind Honda Motor Co and Karsten SA 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 Portfolio Dashboard module to portfolio dashboard that provides centralized access to all your investments.