Correlation Between Honeywell International and Arca Continental

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

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

Diversification Opportunities for Honeywell International and Arca Continental

-0.81

Correlation Coefficient

Honeywell International  Arca Continental

Pay attention - limited upside

The 3 months correlation between Honeywell and Arca is -0.81. Overlapping area represents the amount of risk that can be diversified away by holding Honeywell International and Arca Continental SAB in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Arca Continental SAB and Honeywell International 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 Honeywell International are associated (or correlated) with Arca Continental. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Arca Continental SAB has no effect on the direction of Honeywell International i.e., Honeywell International and Arca Continental go up and down completely randomly.

Pair Corralation between Honeywell International and Arca Continental

Assuming the 90 days trading horizon Honeywell International is expected to under-perform the Arca Continental. But the stock apears to be less risky and, when comparing its historical volatility, Honeywell International is 1.01 times less risky than Arca Continental. The stock trades about -0.08 of its potential returns per unit of risk. The Arca Continental SAB is currently generating about 0.21 of returns per unit of risk over similar time horizon. If you would invest  17,333  in Arca Continental SAB on November 28, 2024 and sell it today you would earn a total of  3,877  from holding Arca Continental SAB or generate 22.37% return on investment over 90 days.

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

Honeywell International  vs.  Arca Continental SAB

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 weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Arca Continental SAB

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Arca Continental SAB are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak primary indicators, Arca Continental showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Honeywell International and Arca Continental

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

The idea behind Honeywell International and Arca Continental SAB 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.