Correlation Between Alphabet and HONEYWELL

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

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

Diversification Opportunities for Alphabet and HONEYWELL

-0.53

Correlation Coefficient

Alphabet  HONEYWELL

Excellent diversification

The 3 months correlation between Alphabet and HONEYWELL is -0.53. Overlapping area represents the amount of risk that can be diversified away by holding Alphabet Inc Class A and HONEYWELL INTERNATIONAL INC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HONEYWELL INTERNATIONAL and Alphabet 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 Alphabet Inc Class A 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 Alphabet i.e., Alphabet and HONEYWELL go up and down completely randomly.

Pair Corralation between Alphabet and HONEYWELL

Assuming the 90 days horizon Alphabet is expected to generate 35.83 times less return on investment than HONEYWELL. But when comparing it to its historical volatility, Alphabet Inc Class A is 43.32 times less risky than HONEYWELL. It trades about 0.09 of its potential returns per unit of risk. HONEYWELL INTERNATIONAL INC is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  7,695  in HONEYWELL INTERNATIONAL INC on October 11, 2024 and sell it today you would lose (1,168) from holding HONEYWELL INTERNATIONAL INC or give up 15.18% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	65.05%
Values	Daily Returns

Alphabet Inc Class A  vs.  HONEYWELL INTERNATIONAL INC

Alphabet Class A

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Alphabet Inc Class A are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite quite fragile technical and fundamental indicators, Alphabet disclosed solid returns over the last few months and may actually be approaching a breakup point.

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 Alphabet and HONEYWELL

The main advantage of trading using opposite Alphabet and HONEYWELL positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Alphabet 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 Alphabet Inc Class A 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.