Correlation Between Nasdaq and Honeywell International

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

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

Diversification Opportunities for Nasdaq and Honeywell International

0.83

Correlation Coefficient

Nasdaq  Honeywell International

Very poor diversification

The 3 months correlation between Nasdaq and Honeywell is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Nasdaq Inc and Honeywell International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Honeywell International and Nasdaq 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 Nasdaq Inc are associated (or correlated) with Honeywell International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Honeywell International has no effect on the direction of Nasdaq i.e., Nasdaq and Honeywell International go up and down completely randomly.

Pair Corralation between Nasdaq and Honeywell International

Given the investment horizon of 90 days Nasdaq Inc is expected to generate 0.93 times more return on investment than Honeywell International. However, Nasdaq Inc is 1.08 times less risky than Honeywell International. It trades about 0.13 of its potential returns per unit of risk. Honeywell International is currently generating about 0.08 per unit of risk. If you would invest  5,520  in Nasdaq Inc on October 2, 2024 and sell it today you would earn a total of  2,211  from holding Nasdaq Inc or generate 40.05% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	99.57%
Values	Daily Returns

Nasdaq Inc  vs.  Honeywell International

Nasdaq Inc

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Nasdaq Inc are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Even with relatively unsteady basic indicators, Nasdaq may actually be approaching a critical reversion point that can send shares even higher in January 2025.

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 nearly fragile basic indicators, Honeywell International reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Nasdaq and Honeywell International

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

The idea behind Nasdaq Inc and Honeywell International 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.