Correlation Between Honeywell International and Canadian National

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

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

Diversification Opportunities for Honeywell International and Canadian National

0.47

Correlation Coefficient

Honeywell International  Canadian National

Very weak diversification

The 3 months correlation between Honeywell and Canadian is 0.47. Overlapping area represents the amount of risk that can be diversified away by holding Honeywell International and Canadian National Railway in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Canadian National Railway 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 Canadian National. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Canadian National Railway has no effect on the direction of Honeywell International i.e., Honeywell International and Canadian National go up and down completely randomly.

Pair Corralation between Honeywell International and Canadian National

Considering the 90-day investment horizon Honeywell International is expected to under-perform the Canadian National. But the stock apears to be less risky and, when comparing its historical volatility, Honeywell International is 1.21 times less risky than Canadian National. The stock trades about -0.08 of its potential returns per unit of risk. The Canadian National Railway is currently generating about -0.03 of returns per unit of risk over similar time horizon. If you would invest  10,078  in Canadian National Railway on December 29, 2024 and sell it today you would lose (333.00) from holding Canadian National Railway or give up 3.3% of portfolio value over 90 days.

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

Honeywell International  vs.  Canadian National Railway

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.

Canadian National Railway

Risk-Adjusted Performance

Very Weak

Over the last 90 days Canadian National Railway has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong basic indicators, Canadian National is not utilizing all of its potentials. The latest stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with Honeywell International and Canadian National

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

The idea behind Honeywell International and Canadian National Railway 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.