Correlation Between Honeywell International and American Airlines

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

By analyzing existing cross correlation between Honeywell International and American Airlines Group, you can compare the effects of market volatilities on Honeywell International and American Airlines 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 American Airlines. Check out your portfolio center. Please also check ongoing floating volatility patterns of Honeywell International and American Airlines.

Diversification Opportunities for Honeywell International and American Airlines

0.76

Correlation Coefficient

Honeywell International  American Airlines

Poor diversification

The 3 months correlation between Honeywell and American is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Honeywell International and American Airlines Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Airlines 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 American Airlines. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Airlines has no effect on the direction of Honeywell International i.e., Honeywell International and American Airlines go up and down completely randomly.

Pair Corralation between Honeywell International and American Airlines

Assuming the 90 days horizon Honeywell International is expected to generate 0.51 times more return on investment than American Airlines. However, Honeywell International is 1.96 times less risky than American Airlines. It trades about -0.12 of its potential returns per unit of risk. American Airlines Group is currently generating about -0.21 per unit of risk. If you would invest  21,863  in Honeywell International on December 22, 2024 and sell it today you would lose (2,463) from holding Honeywell International or give up 11.27% of portfolio value over 90 days.

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

Honeywell International  vs.  American Airlines Group

Honeywell International

Risk-Adjusted Performance

Very Weak

Over the last 90 days Honeywell International has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

American Airlines

Risk-Adjusted Performance

Very Weak

Over the last 90 days American Airlines Group has generated negative risk-adjusted returns adding no value to investors with long positions. Despite uncertain performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Honeywell International and American Airlines

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

The idea behind Honeywell International and American Airlines Group 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.