Correlation Between Honeywell International and Nidec

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

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

Diversification Opportunities for Honeywell International and Nidec

-0.34

Correlation Coefficient

Honeywell International  Nidec

Very good diversification

The 3 months correlation between Honeywell and Nidec is -0.34. Overlapping area represents the amount of risk that can be diversified away by holding Honeywell International and Nidec in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nidec 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 Nidec. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nidec has no effect on the direction of Honeywell International i.e., Honeywell International and Nidec go up and down completely randomly.

Pair Corralation between Honeywell International and Nidec

Assuming the 90 days horizon Honeywell International is expected to generate 1.58 times less return on investment than Nidec. But when comparing it to its historical volatility, Honeywell International is 4.59 times less risky than Nidec. It trades about 0.03 of its potential returns per unit of risk. Nidec is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  562.00  in Nidec on September 26, 2024 and sell it today you would lose (154.00) from holding Nidec or give up 27.4% of portfolio value over 90 days.

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

Honeywell International  vs.  Nidec

Honeywell International

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Honeywell International are ranked lower than 13 (%) 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.

Nidec

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Nidec are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile fundamental drivers, Nidec reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Honeywell International and Nidec

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

The idea behind Honeywell International and Nidec 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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.