Correlation Between Citigroup and Honeywell International

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

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

Diversification Opportunities for Citigroup and Honeywell International

0.9

Correlation Coefficient

Citigroup  Honeywell International

Almost no diversification

The 3 months correlation between Citigroup and Honeywell is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding Citigroup and Honeywell International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Honeywell International and Citigroup 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 Citigroup are associated (or correlated) with Honeywell International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Honeywell International has no effect on the direction of Citigroup i.e., Citigroup and Honeywell International go up and down completely randomly.

Pair Corralation between Citigroup and Honeywell International

Taking into account the 90-day investment horizon Citigroup is expected to generate 1.37 times more return on investment than Honeywell International. However, Citigroup is 1.37 times more volatile than Honeywell International. It trades about 0.07 of its potential returns per unit of risk. Honeywell International is currently generating about 0.03 per unit of risk. If you would invest  4,219  in Citigroup on September 23, 2024 and sell it today you would earn a total of  2,700  from holding Citigroup or generate 64.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	98.03%
Values	Daily Returns

Citigroup  vs.  Honeywell International

Citigroup

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Citigroup are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain fundamental indicators, Citigroup may actually be approaching a critical reversion point that can send shares even higher in January 2025.

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.

Pair Trading with Citigroup and Honeywell International

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

The idea behind Citigroup and Honeywell International 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.

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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.