Correlation Between Honeywell International and A1DI34

Can any of the company-specific risk be diversified away by investing in both Honeywell International and A1DI34 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 A1DI34 into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Honeywell International and A1DI34, you can compare the effects of market volatilities on Honeywell International and A1DI34 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 A1DI34. Check out your portfolio center. Please also check ongoing floating volatility patterns of Honeywell International and A1DI34.

Diversification Opportunities for Honeywell International and A1DI34

0.63

Correlation Coefficient

Honeywell International  A1DI34

Poor diversification

The 3 months correlation between Honeywell and A1DI34 is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Honeywell International and A1DI34 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on A1DI34 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 A1DI34. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of A1DI34 has no effect on the direction of Honeywell International i.e., Honeywell International and A1DI34 go up and down completely randomly.

Pair Corralation between Honeywell International and A1DI34

Assuming the 90 days trading horizon Honeywell International is expected to generate 1.03 times more return on investment than A1DI34. However, Honeywell International is 1.03 times more volatile than A1DI34. It trades about 0.08 of its potential returns per unit of risk. A1DI34 is currently generating about 0.04 per unit of risk. If you would invest  136,106  in Honeywell International on September 28, 2024 and sell it today you would earn a total of  3,894  from holding Honeywell International or generate 2.86% return on investment over 90 days.

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

Honeywell International  vs.  A1DI34

Honeywell International

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Honeywell International are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Honeywell International sustained solid returns over the last few months and may actually be approaching a breakup point.

A1DI34

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in A1DI34 are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak fundamental indicators, A1DI34 may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Honeywell International and A1DI34

The main advantage of trading using opposite Honeywell International and A1DI34 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Honeywell International position performs unexpectedly, A1DI34 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 A1DI34 will offset losses from the drop in A1DI34's long position.

The idea behind Honeywell International and A1DI34 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.