Correlation Between Honeywell International and Swire Pacific

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Can any of the company-specific risk be diversified away by investing in both Honeywell International and Swire Pacific 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 Swire Pacific into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Honeywell International and Swire Pacific, you can compare the effects of market volatilities on Honeywell International and Swire Pacific 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 Swire Pacific. Check out your portfolio center. Please also check ongoing floating volatility patterns of Honeywell International and Swire Pacific.

Diversification Opportunities for Honeywell International and Swire Pacific

0.26
  Correlation Coefficient

Modest diversification

The 3 months correlation between Honeywell and Swire is 0.26. Overlapping area represents the amount of risk that can be diversified away by holding Honeywell International and Swire Pacific in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Swire Pacific 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 Swire Pacific. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Swire Pacific has no effect on the direction of Honeywell International i.e., Honeywell International and Swire Pacific go up and down completely randomly.

Pair Corralation between Honeywell International and Swire Pacific

Considering the 90-day investment horizon Honeywell International is expected to generate 0.47 times more return on investment than Swire Pacific. However, Honeywell International is 2.14 times less risky than Swire Pacific. It trades about -0.08 of its potential returns per unit of risk. Swire Pacific is currently generating about -0.05 per unit of risk. If you would invest  22,890  in Honeywell International on October 25, 2024 and sell it today you would lose (324.00) from holding Honeywell International or give up 1.42% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Weak
Accuracy94.74%
ValuesDaily Returns

Honeywell International  vs.  Swire Pacific

 Performance 
       Timeline  
Honeywell International 

Risk-Adjusted Performance

9 of 100

 
Weak
 
Strong
OK
Compared to the overall equity markets, risk-adjusted returns on investments in Honeywell International are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of very uncertain basic indicators, Honeywell International may actually be approaching a critical reversion point that can send shares even higher in February 2025.
Swire Pacific 

Risk-Adjusted Performance

5 of 100

 
Weak
 
Strong
Modest
Compared to the overall equity markets, risk-adjusted returns on investments in Swire Pacific are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Swire Pacific may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Honeywell International and Swire Pacific Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Honeywell International and Swire Pacific

The main advantage of trading using opposite Honeywell International and Swire Pacific positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Honeywell International position performs unexpectedly, Swire Pacific 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 Swire Pacific will offset losses from the drop in Swire Pacific's long position.
The idea behind Honeywell International and Swire Pacific 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.

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