Correlation Between Disney and Honeywell International

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

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

Diversification Opportunities for Disney and Honeywell International

0.9

Correlation Coefficient

Disney  Honeywell International

Almost no diversification

The 3 months correlation between Disney and Honeywell is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding The Walt Disney and Honeywell International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Honeywell International and Disney 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 The Walt Disney 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 Disney i.e., Disney and Honeywell International go up and down completely randomly.

Pair Corralation between Disney and Honeywell International

Assuming the 90 days trading horizon The Walt Disney is expected to generate 1.44 times more return on investment than Honeywell International. However, Disney is 1.44 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  224,800  in The Walt Disney on September 17, 2024 and sell it today you would earn a total of  3,600  from holding The Walt Disney or generate 1.6% return on investment over 90 days.

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

The Walt Disney  vs.  Honeywell International

Walt Disney

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in The Walt Disney are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unfluctuating basic indicators, Disney showed solid returns over the last few months and may actually be approaching a breakup point.

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. In spite of fairly weak basic indicators, Honeywell International showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Disney and Honeywell International

The main advantage of trading using opposite Disney and Honeywell International positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Disney 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 The Walt Disney 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.

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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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.