Correlation Between Honda and Tesla

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

Diversification Opportunities for Honda and Tesla

-0.15

Correlation Coefficient

Honda  Tesla

Good diversification

The 3 months correlation between Honda and Tesla is -0.15. Overlapping area represents the amount of risk that can be diversified away by holding Honda Motor Co and Tesla Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tesla Inc 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 Tesla. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tesla Inc has no effect on the direction of Honda i.e., Honda and Tesla go up and down completely randomly.

Pair Corralation between Honda and Tesla

Considering the 90-day investment horizon Honda Motor Co is expected to under-perform the Tesla. But the stock apears to be less risky and, when comparing its historical volatility, Honda Motor Co is 5.34 times less risky than Tesla. The stock trades about -0.32 of its potential returns per unit of risk. The Tesla Inc is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  16,663  in Tesla Inc on February 2, 2024 and sell it today you would earn a total of  1,336  from holding Tesla Inc or generate 8.02% return on investment over 90 days.

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

Honda Motor Co  vs.  Tesla Inc

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.

Tesla Inc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Tesla Inc has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong essential indicators, Tesla is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Honda and Tesla

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

The idea behind Honda Motor Co and Tesla Inc 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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.