Correlation Between Trane Technologies and Honeywell International

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

By analyzing existing cross correlation between Trane Technologies plc and Honeywell International, you can compare the effects of market volatilities on Trane Technologies and Honeywell International 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 Trane Technologies with a short position of Honeywell International. Check out your portfolio center. Please also check ongoing floating volatility patterns of Trane Technologies and Honeywell International.

Diversification Opportunities for Trane Technologies and Honeywell International

0.81

Correlation Coefficient

Trane Technologies  Honeywell International

Very poor diversification

The 3 months correlation between Trane and Honeywell is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Trane Technologies plc and Honeywell International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Honeywell International and Trane Technologies 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 Trane Technologies plc are associated (or correlated) with Honeywell International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Honeywell International has no effect on the direction of Trane Technologies i.e., Trane Technologies and Honeywell International go up and down completely randomly.

Pair Corralation between Trane Technologies and Honeywell International

Assuming the 90 days horizon Trane Technologies plc is expected to generate 1.17 times more return on investment than Honeywell International. However, Trane Technologies is 1.17 times more volatile than Honeywell International. It trades about 0.11 of its potential returns per unit of risk. Honeywell International is currently generating about 0.08 per unit of risk. If you would invest  24,945  in Trane Technologies plc on October 2, 2024 and sell it today you would earn a total of  10,185  from holding Trane Technologies plc or generate 40.83% return on investment over 90 days.

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

Trane Technologies plc  vs.  Honeywell International

Trane Technologies plc

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Trane Technologies plc are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Trane Technologies is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Honeywell International

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Honeywell International are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Honeywell International reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Trane Technologies and Honeywell International

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

The idea behind Trane Technologies plc and Honeywell International 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 Companies Directory module to evaluate performance of over 100,000 Stocks, Funds, and ETFs against different fundamentals.