Correlation Between Honeywell International and SAP SE

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

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

Diversification Opportunities for Honeywell International and SAP SE

0.65

Correlation Coefficient

Honeywell International  SAP SE

Poor diversification

The 3 months correlation between Honeywell and SAP is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Honeywell International and SAP SE in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SAP SE 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 SAP SE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SAP SE has no effect on the direction of Honeywell International i.e., Honeywell International and SAP SE go up and down completely randomly.

Pair Corralation between Honeywell International and SAP SE

Assuming the 90 days trading horizon Honeywell International is expected to under-perform the SAP SE. But the stock apears to be less risky and, when comparing its historical volatility, Honeywell International is 1.17 times less risky than SAP SE. The stock trades about -0.09 of its potential returns per unit of risk. The SAP SE is currently generating about 0.21 of returns per unit of risk over similar time horizon. If you would invest  479,440  in SAP SE on September 25, 2024 and sell it today you would earn a total of  20,560  from holding SAP SE or generate 4.29% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	95.24%
Values	Daily Returns

Honeywell International  vs.  SAP SE

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.

SAP SE

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in SAP SE are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, SAP SE showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Honeywell International and SAP SE

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

The idea behind Honeywell International and SAP SE 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.