Correlation Between HONEYWELL and MGIC Investment

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

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

Diversification Opportunities for HONEYWELL and MGIC Investment

0.4

Correlation Coefficient

HONEYWELL  MGIC Investment

Very weak diversification

The 3 months correlation between HONEYWELL and MGIC is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding HONEYWELL INTL INC and MGIC Investment Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MGIC Investment Corp and HONEYWELL 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 INTL INC are associated (or correlated) with MGIC Investment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MGIC Investment Corp has no effect on the direction of HONEYWELL i.e., HONEYWELL and MGIC Investment go up and down completely randomly.

Pair Corralation between HONEYWELL and MGIC Investment

Assuming the 90 days trading horizon HONEYWELL INTL INC is expected to generate 1.45 times more return on investment than MGIC Investment. However, HONEYWELL is 1.45 times more volatile than MGIC Investment Corp. It trades about 0.24 of its potential returns per unit of risk. MGIC Investment Corp is currently generating about 0.12 per unit of risk. If you would invest  9,910  in HONEYWELL INTL INC on October 26, 2024 and sell it today you would earn a total of  599.00  from holding HONEYWELL INTL INC or generate 6.04% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	77.78%
Values	Daily Returns

HONEYWELL INTL INC  vs.  MGIC Investment Corp

HONEYWELL INTL INC

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in HONEYWELL INTL INC are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, HONEYWELL is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

MGIC Investment Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days MGIC Investment Corp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, MGIC Investment is not utilizing all of its potentials. The recent stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with HONEYWELL and MGIC Investment

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

The idea behind HONEYWELL INTL INC and MGIC Investment Corp 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.