Correlation Between Honda and Banco Mercantil

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

Diversification Opportunities for Honda and Banco Mercantil

-0.52

Correlation Coefficient

Honda  Banco Mercantil

Excellent diversification

The 3 months correlation between Honda and Banco is -0.52. Overlapping area represents the amount of risk that can be diversified away by holding Honda Motor Co and Banco Mercantil do in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Banco Mercantil do 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 Banco Mercantil. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Banco Mercantil do has no effect on the direction of Honda i.e., Honda and Banco Mercantil go up and down completely randomly.

Pair Corralation between Honda and Banco Mercantil

Assuming the 90 days trading horizon Honda Motor Co is expected to generate 0.6 times more return on investment than Banco Mercantil. However, Honda Motor Co is 1.66 times less risky than Banco Mercantil. It trades about 0.02 of its potential returns per unit of risk. Banco Mercantil do is currently generating about -0.02 per unit of risk. If you would invest  17,493  in Honda Motor Co on March 13, 2024 and sell it today you would earn a total of  57.00  from holding Honda Motor Co or generate 0.33% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	95.24%
Values	Daily Returns

Honda Motor Co  vs.  Banco Mercantil do

Honda Motor

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Honda Motor Co are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Honda is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the investors.

Banco Mercantil do

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Banco Mercantil do are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, Banco Mercantil unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Honda and Banco Mercantil

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

The idea behind Honda Motor Co and Banco Mercantil do 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.

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 the Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.