Correlation Between Honeywell Automation and Salzer Electronics

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

Diversification Opportunities for Honeywell Automation and Salzer Electronics

-0.42

Correlation Coefficient

Honeywell Automation  Salzer Electronics

Very good diversification

The 3 months correlation between Honeywell and Salzer is -0.42. Overlapping area represents the amount of risk that can be diversified away by holding Honeywell Automation India and Salzer Electronics Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Salzer Electronics 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 Salzer Electronics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Salzer Electronics has no effect on the direction of Honeywell Automation i.e., Honeywell Automation and Salzer Electronics go up and down completely randomly.

Pair Corralation between Honeywell Automation and Salzer Electronics

Assuming the 90 days trading horizon Honeywell Automation is expected to generate 2.94 times less return on investment than Salzer Electronics. But when comparing it to its historical volatility, Honeywell Automation India is 2.81 times less risky than Salzer Electronics. It trades about 0.18 of its potential returns per unit of risk. Salzer Electronics Limited is currently generating about 0.19 of returns per unit of risk over similar time horizon. If you would invest  122,580  in Salzer Electronics Limited on October 6, 2024 and sell it today you would earn a total of  17,960  from holding Salzer Electronics Limited or generate 14.65% return on investment over 90 days.

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

Honeywell Automation India  vs.  Salzer Electronics 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 weak 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.

Salzer Electronics

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Salzer Electronics Limited are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady essential indicators, Salzer Electronics exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Honeywell Automation and Salzer Electronics

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

The idea behind Honeywell Automation India and Salzer Electronics 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.