Correlation Between Honeywell International and Gilead Sciences

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

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

Diversification Opportunities for Honeywell International and Gilead Sciences

0.92

Correlation Coefficient

Honeywell International  Gilead Sciences

Almost no diversification

The 3 months correlation between Honeywell and Gilead is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding Honeywell International and Gilead Sciences in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gilead Sciences 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 Gilead Sciences. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Gilead Sciences has no effect on the direction of Honeywell International i.e., Honeywell International and Gilead Sciences go up and down completely randomly.

Pair Corralation between Honeywell International and Gilead Sciences

Assuming the 90 days trading horizon Honeywell International is expected to generate 2.11 times less return on investment than Gilead Sciences. In addition to that, Honeywell International is 1.11 times more volatile than Gilead Sciences. It trades about 0.12 of its total potential returns per unit of risk. Gilead Sciences is currently generating about 0.29 per unit of volatility. If you would invest  26,080  in Gilead Sciences on September 25, 2024 and sell it today you would earn a total of  2,676  from holding Gilead Sciences or generate 10.26% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	95.45%
Values	Daily Returns

Honeywell International  vs.  Gilead Sciences

Honeywell International

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Honeywell International are ranked lower than 14 (%) 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.

Gilead Sciences

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Gilead Sciences are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak essential indicators, Gilead Sciences sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Honeywell International and Gilead Sciences

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

The idea behind Honeywell International and Gilead Sciences 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 Portfolio Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.