Correlation Between Honeywell International and Cognizant Technology

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

By analyzing existing cross correlation between Honeywell International and Cognizant Technology Solutions, you can compare the effects of market volatilities on Honeywell International and Cognizant Technology 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 Cognizant Technology. Check out your portfolio center. Please also check ongoing floating volatility patterns of Honeywell International and Cognizant Technology.

Diversification Opportunities for Honeywell International and Cognizant Technology

0.83

Correlation Coefficient

Honeywell International  Cognizant Technology

Very poor diversification

The 3 months correlation between Honeywell and Cognizant is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Honeywell International and Cognizant Technology Solutions in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cognizant Technology 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 Cognizant Technology. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cognizant Technology has no effect on the direction of Honeywell International i.e., Honeywell International and Cognizant Technology go up and down completely randomly.

Pair Corralation between Honeywell International and Cognizant Technology

Assuming the 90 days trading horizon Honeywell International is expected to generate 2.88 times more return on investment than Cognizant Technology. However, Honeywell International is 2.88 times more volatile than Cognizant Technology Solutions. It trades about 0.18 of its potential returns per unit of risk. Cognizant Technology Solutions is currently generating about 0.14 per unit of risk. If you would invest  390,133  in Honeywell International on September 17, 2024 and sell it today you would earn a total of  69,867  from holding Honeywell International or generate 17.91% return on investment over 90 days.

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

Honeywell International  vs.  Cognizant Technology Solutions

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.

Cognizant Technology

Risk-Adjusted Performance

10 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Cognizant Technology Solutions are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong basic indicators, Cognizant Technology is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Honeywell International and Cognizant Technology

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

The idea behind Honeywell International and Cognizant Technology Solutions 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.