Correlation Between Honeywell International and Alliance Recovery

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

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

Diversification Opportunities for Honeywell International and Alliance Recovery

-0.15

Correlation Coefficient

Honeywell International  Alliance Recovery

Good diversification

The 3 months correlation between Honeywell and Alliance is -0.15. Overlapping area represents the amount of risk that can be diversified away by holding Honeywell International and Alliance Recovery in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alliance Recovery 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 Alliance Recovery. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Alliance Recovery has no effect on the direction of Honeywell International i.e., Honeywell International and Alliance Recovery go up and down completely randomly.

Pair Corralation between Honeywell International and Alliance Recovery

Considering the 90-day investment horizon Honeywell International is expected to under-perform the Alliance Recovery. But the stock apears to be less risky and, when comparing its historical volatility, Honeywell International is 7.74 times less risky than Alliance Recovery. The stock trades about -0.08 of its potential returns per unit of risk. The Alliance Recovery is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  0.26  in Alliance Recovery on December 1, 2024 and sell it today you would earn a total of  0.01  from holding Alliance Recovery or generate 3.85% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	93.75%
Values	Daily Returns

Honeywell International  vs.  Alliance Recovery

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 basic indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Alliance Recovery

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Alliance Recovery are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of fairly conflicting basic indicators, Alliance Recovery showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Honeywell International and Alliance Recovery

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

The idea behind Honeywell International and Alliance Recovery 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.