Correlation Between First Merchants and HONEYWELL

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

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

Diversification Opportunities for First Merchants and HONEYWELL

-0.41

Correlation Coefficient

First Merchants  HONEYWELL

Very good diversification

The 3 months correlation between First and HONEYWELL is -0.41. Overlapping area represents the amount of risk that can be diversified away by holding First Merchants and HONEYWELL INTERNATIONAL INC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HONEYWELL INTERNATIONAL and First Merchants 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 First Merchants are associated (or correlated) with HONEYWELL. 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 First Merchants i.e., First Merchants and HONEYWELL go up and down completely randomly.

Pair Corralation between First Merchants and HONEYWELL

Given the investment horizon of 90 days First Merchants is expected to generate 46.77 times less return on investment than HONEYWELL. But when comparing it to its historical volatility, First Merchants is 20.95 times less risky than HONEYWELL. It trades about 0.02 of its potential returns per unit of risk. HONEYWELL INTERNATIONAL INC is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  8,941  in HONEYWELL INTERNATIONAL INC on September 23, 2024 and sell it today you would earn a total of  2.00  from holding HONEYWELL INTERNATIONAL INC or generate 0.02% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	98.99%
Values	Daily Returns

First Merchants  vs.  HONEYWELL INTERNATIONAL INC

First Merchants

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in First Merchants are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of rather conflicting primary indicators, First Merchants may actually be approaching a critical reversion point that can send shares even higher in January 2025.

HONEYWELL INTERNATIONAL

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days HONEYWELL INTERNATIONAL INC has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, HONEYWELL is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with First Merchants and HONEYWELL

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

The idea behind First Merchants and HONEYWELL INTERNATIONAL INC 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.