Correlation Between Honeywell International and CITIC

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

By analyzing existing cross correlation between Honeywell International and CITIC LTD ADR5, you can compare the effects of market volatilities on Honeywell International and CITIC 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 CITIC. Check out your portfolio center. Please also check ongoing floating volatility patterns of Honeywell International and CITIC.

Diversification Opportunities for Honeywell International and CITIC

-0.64

Correlation Coefficient

Honeywell International  CITIC

Excellent diversification

The 3 months correlation between Honeywell and CITIC is -0.64. Overlapping area represents the amount of risk that can be diversified away by holding Honeywell International and CITIC LTD ADR5 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CITIC LTD ADR5 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 CITIC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CITIC LTD ADR5 has no effect on the direction of Honeywell International i.e., Honeywell International and CITIC go up and down completely randomly.

Pair Corralation between Honeywell International and CITIC

Assuming the 90 days trading horizon Honeywell International is expected to generate 2.89 times less return on investment than CITIC. But when comparing it to its historical volatility, Honeywell International is 1.84 times less risky than CITIC. It trades about 0.04 of its potential returns per unit of risk. CITIC LTD ADR5 is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  394.00  in CITIC LTD ADR5 on December 11, 2024 and sell it today you would earn a total of  156.00  from holding CITIC LTD ADR5 or generate 39.59% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	96.3%
Values	Daily Returns

Honeywell International  vs.  CITIC LTD ADR5

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. In spite of latest fragile performance, the Stock's fundamental indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

CITIC LTD ADR5

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in CITIC LTD ADR5 are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable technical and fundamental indicators, CITIC 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 CITIC

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

The idea behind Honeywell International and CITIC LTD ADR5 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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.