Correlation Between Honeywell Automation and HEG

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

By analyzing existing cross correlation between Honeywell Automation India and HEG Limited, you can compare the effects of market volatilities on Honeywell Automation and HEG 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 Automation with a short position of HEG. Check out your portfolio center. Please also check ongoing floating volatility patterns of Honeywell Automation and HEG.

Diversification Opportunities for Honeywell Automation and HEG

-0.27

Correlation Coefficient

Honeywell Automation  HEG

Very good diversification

The 3 months correlation between Honeywell and HEG is -0.27. Overlapping area represents the amount of risk that can be diversified away by holding Honeywell Automation India and HEG Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HEG Limited and Honeywell Automation 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 Automation India are associated (or correlated) with HEG. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of HEG Limited has no effect on the direction of Honeywell Automation i.e., Honeywell Automation and HEG go up and down completely randomly.

Pair Corralation between Honeywell Automation and HEG

Assuming the 90 days trading horizon Honeywell Automation is expected to generate 408.81 times less return on investment than HEG. But when comparing it to its historical volatility, Honeywell Automation India is 99.55 times less risky than HEG. It trades about 0.04 of its potential returns per unit of risk. HEG Limited is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest  35,018  in HEG Limited on October 6, 2024 and sell it today you would earn a total of  17,807  from holding HEG Limited or generate 50.85% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	96.05%
Values	Daily Returns

Honeywell Automation India  vs.  HEG Limited

Honeywell Automation

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Honeywell Automation India has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest inconsistent performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

HEG Limited

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in HEG Limited are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain technical and fundamental indicators, HEG exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Honeywell Automation and HEG

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

The idea behind Honeywell Automation India and HEG Limited 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.