Correlation Between Dorman Products and Honda

Can any of the company-specific risk be diversified away by investing in both Dorman Products 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 Dorman Products and Honda into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Dorman Products and Honda Motor Co, you can compare the effects of market volatilities on Dorman Products 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 Dorman Products with a short position of Honda. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dorman Products and Honda.

Diversification Opportunities for Dorman Products and Honda

0.71

Correlation Coefficient

Dorman Products  Honda

Poor diversification

The 3 months correlation between Dorman and Honda is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Dorman Products and Honda Motor Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Honda Motor and Dorman Products 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 Dorman Products 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 Dorman Products i.e., Dorman Products and Honda go up and down completely randomly.

Pair Corralation between Dorman Products and Honda

Given the investment horizon of 90 days Dorman Products is expected to under-perform the Honda. In addition to that, Dorman Products is 1.42 times more volatile than Honda Motor Co. It trades about -0.26 of its total potential returns per unit of risk. Honda Motor Co is currently generating about -0.33 per unit of volatility. If you would invest  3,634  in Honda Motor Co on February 2, 2024 and sell it today you would lose (252.00) from holding Honda Motor Co or give up 6.93% of portfolio value over 90 days.

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

Dorman Products  vs.  Honda Motor Co

Dorman Products

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Dorman Products are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of very inconsistent basic indicators, Dorman Products may actually be approaching a critical reversion point that can send shares even higher in June 2024.

Honda Motor

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Honda Motor Co are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound primary indicators, Honda is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Dorman Products and Honda

The main advantage of trading using opposite Dorman Products and Honda positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dorman Products 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.

The idea behind Dorman Products and Honda Motor Co 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.