Correlation Between PENN NATL and Honeywell International

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

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

Diversification Opportunities for PENN NATL and Honeywell International

0.41

Correlation Coefficient

PENN NATL  Honeywell International

Very weak diversification

The 3 months correlation between PENN and Honeywell is 0.41. Overlapping area represents the amount of risk that can be diversified away by holding PENN NATL GAMING and Honeywell International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Honeywell International and PENN NATL 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 PENN NATL GAMING 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 PENN NATL i.e., PENN NATL and Honeywell International go up and down completely randomly.

Pair Corralation between PENN NATL and Honeywell International

Assuming the 90 days trading horizon PENN NATL is expected to generate 1.83 times less return on investment than Honeywell International. In addition to that, PENN NATL is 1.85 times more volatile than Honeywell International. It trades about 0.06 of its total potential returns per unit of risk. Honeywell International is currently generating about 0.21 per unit of volatility. If you would invest  18,443  in Honeywell International on October 7, 2024 and sell it today you would earn a total of  3,577  from holding Honeywell International or generate 19.39% return on investment over 90 days.

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

PENN NATL GAMING  vs.  Honeywell International

PENN NATL GAMING

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in PENN NATL GAMING are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile basic indicators, PENN NATL may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Honeywell International

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Honeywell International are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady fundamental indicators, Honeywell International unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with PENN NATL and Honeywell International

The main advantage of trading using opposite PENN NATL and Honeywell International positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if PENN NATL 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 PENN NATL GAMING 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.