Correlation Between Honeywell International and Otis Worldwide

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

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

Diversification Opportunities for Honeywell International and Otis Worldwide

0.69

Correlation Coefficient

Honeywell International  Otis Worldwide

Poor diversification

The 3 months correlation between Honeywell and Otis is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding Honeywell International and Otis Worldwide in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Otis Worldwide 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 Otis Worldwide. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Otis Worldwide has no effect on the direction of Honeywell International i.e., Honeywell International and Otis Worldwide go up and down completely randomly.

Pair Corralation between Honeywell International and Otis Worldwide

Assuming the 90 days trading horizon Honeywell International is expected to generate 1.48 times more return on investment than Otis Worldwide. However, Honeywell International is 1.48 times more volatile than Otis Worldwide. It trades about 0.17 of its potential returns per unit of risk. Otis Worldwide is currently generating about 0.21 per unit of risk. If you would invest  113,200  in Honeywell International on September 12, 2024 and sell it today you would earn a total of  24,122  from holding Honeywell International or generate 21.31% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	96.77%
Values	Daily Returns

Honeywell International  vs.  Otis Worldwide

Honeywell International

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Honeywell International are ranked lower than 13 (%) 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.

Otis Worldwide

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Otis Worldwide are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite somewhat uncertain basic indicators, Otis Worldwide sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Honeywell International and Otis Worldwide

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

The idea behind Honeywell International and Otis Worldwide 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.