Correlation Between First Trust and HONEYWELL

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

By analyzing existing cross correlation between First Trust Exchange Traded and HONEYWELL INTERNATIONAL INC, you can compare the effects of market volatilities on First Trust and HONEYWELL 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 First Trust with a short position of HONEYWELL. Check out your portfolio center. Please also check ongoing floating volatility patterns of First Trust and HONEYWELL.

Diversification Opportunities for First Trust and HONEYWELL

-0.06

Correlation Coefficient

First Trust  HONEYWELL

Good diversification

The 3 months correlation between First and HONEYWELL is -0.06. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Exchange Traded and HONEYWELL INTERNATIONAL INC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HONEYWELL INTERNATIONAL and First Trust 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 First Trust Exchange Traded are associated (or correlated) with HONEYWELL. 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 First Trust i.e., First Trust and HONEYWELL go up and down completely randomly.

Pair Corralation between First Trust and HONEYWELL

Given the investment horizon of 90 days First Trust Exchange Traded is expected to under-perform the HONEYWELL. In addition to that, First Trust is 2.56 times more volatile than HONEYWELL INTERNATIONAL INC. It trades about -0.1 of its total potential returns per unit of risk. HONEYWELL INTERNATIONAL INC is currently generating about -0.04 per unit of volatility. If you would invest  9,172  in HONEYWELL INTERNATIONAL INC on December 29, 2024 and sell it today you would lose (89.00) from holding HONEYWELL INTERNATIONAL INC or give up 0.97% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.39%
Values	Daily Returns

First Trust Exchange Traded  vs.  HONEYWELL INTERNATIONAL INC

First Trust Exchange

Risk-Adjusted Performance

Very Weak

Over the last 90 days First Trust Exchange Traded has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, First Trust is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

HONEYWELL INTERNATIONAL

Risk-Adjusted Performance

Very Weak

Over the last 90 days HONEYWELL INTERNATIONAL INC has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, HONEYWELL is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with First Trust and HONEYWELL

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

The idea behind First Trust Exchange Traded and HONEYWELL INTERNATIONAL INC 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..