Correlation Between Swire Pacific and Honeywell International

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

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

Diversification Opportunities for Swire Pacific and Honeywell International

0.52

Correlation Coefficient

Swire Pacific  Honeywell International

Very weak diversification

The 3 months correlation between Swire and Honeywell is 0.52. Overlapping area represents the amount of risk that can be diversified away by holding Swire Pacific Ltd and Honeywell International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Honeywell International and Swire Pacific 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 Swire Pacific Ltd 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 Swire Pacific i.e., Swire Pacific and Honeywell International go up and down completely randomly.

Pair Corralation between Swire Pacific and Honeywell International

Assuming the 90 days horizon Swire Pacific Ltd is expected to generate 0.85 times more return on investment than Honeywell International. However, Swire Pacific Ltd is 1.18 times less risky than Honeywell International. It trades about -0.04 of its potential returns per unit of risk. Honeywell International is currently generating about -0.08 per unit of risk. If you would invest  700.00  in Swire Pacific Ltd on December 29, 2024 and sell it today you would lose (23.00) from holding Swire Pacific Ltd or give up 3.29% of portfolio value over 90 days.

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

Swire Pacific Ltd  vs.  Honeywell International

Swire Pacific

Risk-Adjusted Performance

Very Weak

Over the last 90 days Swire Pacific Ltd has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong fundamental drivers, Swire Pacific is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Honeywell International

Risk-Adjusted Performance

Very Weak

Over the last 90 days Honeywell International has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's basic indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Pair Trading with Swire Pacific and Honeywell International

The main advantage of trading using opposite Swire Pacific and Honeywell International positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Swire Pacific 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 Swire Pacific Ltd 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 Global Correlations module to find global opportunities by holding instruments from different markets.