Correlation Between Honeywell International and EatonPLC
Can any of the company-specific risk be diversified away by investing in both Honeywell International and EatonPLC 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 Honeywell International and EatonPLC into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Honeywell International and Eaton PLC, you can compare the effects of market volatilities on Honeywell International and EatonPLC 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 Honeywell International with a short position of EatonPLC. Check out your portfolio center. Please also check ongoing floating volatility patterns of Honeywell International and EatonPLC.
Diversification Opportunities for Honeywell International and EatonPLC
0.92 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Honeywell and EatonPLC is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding Honeywell International and Eaton PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Eaton PLC and Honeywell International 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 Honeywell International are associated (or correlated) with EatonPLC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Eaton PLC has no effect on the direction of Honeywell International i.e., Honeywell International and EatonPLC go up and down completely randomly.
Pair Corralation between Honeywell International and EatonPLC
Assuming the 90 days horizon Honeywell International is expected to generate 1.68 times less return on investment than EatonPLC. But when comparing it to its historical volatility, Honeywell International is 1.16 times less risky than EatonPLC. It trades about 0.19 of its potential returns per unit of risk. Eaton PLC is currently generating about 0.27 of returns per unit of risk over similar time horizon. If you would invest 25,467 in Eaton PLC on September 6, 2024 and sell it today you would earn a total of 9,763 from holding Eaton PLC or generate 38.34% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Very Strong |
Accuracy | 98.46% |
Values | Daily Returns |
Honeywell International vs. Eaton PLC
Performance |
Timeline |
Honeywell International |
Eaton PLC |
Honeywell International and EatonPLC Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Honeywell International and EatonPLC
The main advantage of trading using opposite Honeywell International and EatonPLC positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Honeywell International position performs unexpectedly, EatonPLC 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 EatonPLC will offset losses from the drop in EatonPLC's long position.The idea behind Honeywell International and Eaton PLC 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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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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.
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