Correlation Between 3M India and Honeywell Automation

Can any of the company-specific risk be diversified away by investing in both 3M India and Honeywell Automation 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 3M India and Honeywell Automation into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between 3M India Limited and Honeywell Automation India, you can compare the effects of market volatilities on 3M India and Honeywell Automation 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 3M India with a short position of Honeywell Automation. Check out your portfolio center. Please also check ongoing floating volatility patterns of 3M India and Honeywell Automation.

Diversification Opportunities for 3M India and Honeywell Automation

0.82

Correlation Coefficient

3M India  Honeywell Automation

Very poor diversification

The 3 months correlation between 3MINDIA and Honeywell is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding 3M India Limited and Honeywell Automation India in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Honeywell Automation and 3M India 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 3M India Limited are associated (or correlated) with Honeywell Automation. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Honeywell Automation has no effect on the direction of 3M India i.e., 3M India and Honeywell Automation go up and down completely randomly.

Pair Corralation between 3M India and Honeywell Automation

Assuming the 90 days trading horizon 3M India Limited is expected to under-perform the Honeywell Automation. But the stock apears to be less risky and, when comparing its historical volatility, 3M India Limited is 1.15 times less risky than Honeywell Automation. The stock trades about -0.2 of its potential returns per unit of risk. The Honeywell Automation India is currently generating about -0.17 of returns per unit of risk over similar time horizon. If you would invest  4,083,515  in Honeywell Automation India on November 29, 2024 and sell it today you would lose (725,960) from holding Honeywell Automation India or give up 17.78% of portfolio value over 90 days.

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

3M India Limited  vs.  Honeywell Automation India

3M India Limited

Risk-Adjusted Performance

Very Weak

Over the last 90 days 3M India Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's fundamental indicators remain somewhat strong which may send shares a bit higher in March 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Honeywell Automation

Risk-Adjusted Performance

Very Weak

Over the last 90 days Honeywell Automation India has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unfluctuating performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in March 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with 3M India and Honeywell Automation

The main advantage of trading using opposite 3M India and Honeywell Automation positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if 3M India position performs unexpectedly, Honeywell Automation 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 Automation will offset losses from the drop in Honeywell Automation's long position.

The idea behind 3M India Limited and Honeywell Automation India 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.