Correlation Between Honeywell International and Itochu Corp

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

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

Diversification Opportunities for Honeywell International and Itochu Corp

0.85

Correlation Coefficient

Honeywell International  Itochu Corp

Very poor diversification

The 3 months correlation between Honeywell and Itochu is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Honeywell International and Itochu Corp ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Itochu Corp ADR 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 Itochu Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Itochu Corp ADR has no effect on the direction of Honeywell International i.e., Honeywell International and Itochu Corp go up and down completely randomly.

Pair Corralation between Honeywell International and Itochu Corp

Considering the 90-day investment horizon Honeywell International is expected to generate 0.85 times more return on investment than Itochu Corp. However, Honeywell International is 1.18 times less risky than Itochu Corp. It trades about -0.08 of its potential returns per unit of risk. Itochu Corp ADR is currently generating about -0.11 per unit of risk. If you would invest  22,873  in Honeywell International on December 1, 2024 and sell it today you would lose (1,584) from holding Honeywell International or give up 6.93% of portfolio value over 90 days.

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

Honeywell International  vs.  Itochu Corp ADR

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.

Itochu Corp ADR

Risk-Adjusted Performance

Very Weak

Over the last 90 days Itochu Corp ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's fundamental indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Honeywell International and Itochu Corp

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

The idea behind Honeywell International and Itochu Corp ADR 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 Companies Directory module to evaluate performance of over 100,000 Stocks, Funds, and ETFs against different fundamentals.