Correlation Between Honeywell Automation and IDBI Bank

Can any of the company-specific risk be diversified away by investing in both Honeywell Automation and IDBI Bank 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 IDBI Bank 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 IDBI Bank Limited, you can compare the effects of market volatilities on Honeywell Automation and IDBI Bank 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 IDBI Bank. Check out your portfolio center. Please also check ongoing floating volatility patterns of Honeywell Automation and IDBI Bank.

Diversification Opportunities for Honeywell Automation and IDBI Bank

0.26

Correlation Coefficient

Honeywell Automation  IDBI Bank

Modest diversification

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

Pair Corralation between Honeywell Automation and IDBI Bank

Assuming the 90 days trading horizon Honeywell Automation India is expected to under-perform the IDBI Bank. But the stock apears to be less risky and, when comparing its historical volatility, Honeywell Automation India is 2.02 times less risky than IDBI Bank. The stock trades about -0.19 of its potential returns per unit of risk. The IDBI Bank Limited is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest  7,768  in IDBI Bank Limited on November 20, 2024 and sell it today you would lose (558.00) from holding IDBI Bank Limited or give up 7.18% of portfolio value over 90 days.

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

Honeywell Automation India  vs.  IDBI Bank Limited

Honeywell Automation

Risk-Adjusted Performance

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 uncertain performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in March 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

IDBI Bank Limited

Risk-Adjusted Performance

Very Weak

Over the last 90 days IDBI Bank Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, IDBI Bank is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Honeywell Automation and IDBI Bank

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

The idea behind Honeywell Automation India and IDBI Bank 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.

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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 Sync Your Broker module to sync your existing holdings, watchlists, positions or portfolios from thousands of online brokerage services, banks, investment account aggregators and robo-advisors..