Correlation Between INVITATION HOMES and Honeywell International

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

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

Diversification Opportunities for INVITATION HOMES and Honeywell International

0.42

Correlation Coefficient

INVITATION HOMES  Honeywell International

Very weak diversification

The 3 months correlation between INVITATION and Honeywell is 0.42. Overlapping area represents the amount of risk that can be diversified away by holding INVITATION HOMES DL and Honeywell International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Honeywell International and INVITATION HOMES 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 INVITATION HOMES DL 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 INVITATION HOMES i.e., INVITATION HOMES and Honeywell International go up and down completely randomly.

Pair Corralation between INVITATION HOMES and Honeywell International

Assuming the 90 days horizon INVITATION HOMES DL is expected to under-perform the Honeywell International. But the stock apears to be less risky and, when comparing its historical volatility, INVITATION HOMES DL is 1.16 times less risky than Honeywell International. The stock trades about -0.05 of its potential returns per unit of risk. The Honeywell International is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  19,245  in Honeywell International on October 24, 2024 and sell it today you would earn a total of  2,505  from holding Honeywell International or generate 13.02% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.33%
Values	Daily Returns

INVITATION HOMES DL  vs.  Honeywell International

INVITATION HOMES

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days INVITATION HOMES DL has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, INVITATION HOMES 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

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Honeywell International are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady basic indicators, Honeywell International reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with INVITATION HOMES and Honeywell International

The main advantage of trading using opposite INVITATION HOMES and Honeywell International positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if INVITATION HOMES 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 INVITATION HOMES DL 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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.