Correlation Between Honeywell Automation and MRF

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

Diversification Opportunities for Honeywell Automation and MRF

0.72

Correlation Coefficient

Honeywell Automation  MRF

Poor diversification

The 3 months correlation between Honeywell and MRF is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Honeywell Automation India and MRF Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MRF 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 MRF. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MRF Limited has no effect on the direction of Honeywell Automation i.e., Honeywell Automation and MRF go up and down completely randomly.

Pair Corralation between Honeywell Automation and MRF

Assuming the 90 days trading horizon Honeywell Automation India is expected to under-perform the MRF. In addition to that, Honeywell Automation is 1.46 times more volatile than MRF Limited. It trades about -0.2 of its total potential returns per unit of risk. MRF Limited is currently generating about -0.12 per unit of volatility. If you would invest  13,419,200  in MRF Limited on August 31, 2024 and sell it today you would lose (1,053,000) from holding MRF Limited or give up 7.85% of portfolio value over 90 days.

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

Honeywell Automation India  vs.  MRF 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 uncertain performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in December 2024. The current disturbance may also be a sign of long term up-swing for the company investors.

MRF Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days MRF Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's technical and fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Pair Trading with Honeywell Automation and MRF

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

The idea behind Honeywell Automation India and MRF 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 Money Managers module to screen money managers from public funds and ETFs managed around the world.