Correlation Between HK Electric and Honeywell International

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

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

Diversification Opportunities for HK Electric and Honeywell International

0.17

Correlation Coefficient

HK Electric  Honeywell International

Average diversification

The 3 months correlation between HKT and Honeywell is 0.17. Overlapping area represents the amount of risk that can be diversified away by holding HK Electric Investments and Honeywell International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Honeywell International and HK Electric 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 HK Electric Investments 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 HK Electric i.e., HK Electric and Honeywell International go up and down completely randomly.

Pair Corralation between HK Electric and Honeywell International

Assuming the 90 days trading horizon HK Electric Investments is expected to generate 0.48 times more return on investment than Honeywell International. However, HK Electric Investments is 2.1 times less risky than Honeywell International. It trades about -0.03 of its potential returns per unit of risk. Honeywell International is currently generating about -0.11 per unit of risk. If you would invest  64.00  in HK Electric Investments on December 23, 2024 and sell it today you would lose (1.00) from holding HK Electric Investments or give up 1.56% of portfolio value over 90 days.

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

HK Electric Investments  vs.  Honeywell International

HK Electric Investments

Risk-Adjusted Performance

Very Weak

Over the last 90 days HK Electric Investments has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, HK Electric is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

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 uncertain 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.

Pair Trading with HK Electric and Honeywell International

The main advantage of trading using opposite HK Electric and Honeywell International positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if HK Electric 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 HK Electric Investments 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.