Correlation Between Honeywell International and ABB

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

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

Diversification Opportunities for Honeywell International and ABB

0.6

Correlation Coefficient

Honeywell International  ABB

Poor diversification

The 3 months correlation between Honeywell and ABB is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Honeywell International and ABB in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ABB 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 ABB. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ABB has no effect on the direction of Honeywell International i.e., Honeywell International and ABB go up and down completely randomly.

Pair Corralation between Honeywell International and ABB

Assuming the 90 days horizon Honeywell International is expected to generate 0.67 times more return on investment than ABB. However, Honeywell International is 1.49 times less risky than ABB. It trades about 0.01 of its potential returns per unit of risk. ABB is currently generating about -0.09 per unit of risk. If you would invest  21,965  in Honeywell International on September 23, 2024 and sell it today you would earn a total of  35.00  from holding Honeywell International or generate 0.16% return on investment over 90 days.

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

Honeywell International  vs.  ABB

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.

ABB

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ABB has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable forward-looking indicators, ABB is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Honeywell International and ABB

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

The idea behind Honeywell International and ABB 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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.