Correlation Between Western Digital and HONEYWELL

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

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

Diversification Opportunities for Western Digital and HONEYWELL

0.16

Correlation Coefficient

Western Digital  HONEYWELL

Average diversification

The 3 months correlation between Western and HONEYWELL is 0.16. Overlapping area represents the amount of risk that can be diversified away by holding Western Digital and HONEYWELL INTL INC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HONEYWELL INTL INC and Western Digital 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 Western Digital 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 INTL INC has no effect on the direction of Western Digital i.e., Western Digital and HONEYWELL go up and down completely randomly.

Pair Corralation between Western Digital and HONEYWELL

Considering the 90-day investment horizon Western Digital is expected to under-perform the HONEYWELL. In addition to that, Western Digital is 4.59 times more volatile than HONEYWELL INTL INC. It trades about -0.03 of its total potential returns per unit of risk. HONEYWELL INTL INC is currently generating about -0.1 per unit of volatility. If you would invest  9,653  in HONEYWELL INTL INC on December 25, 2024 and sell it today you would lose (372.00) from holding HONEYWELL INTL INC or give up 3.85% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.36%
Values	Daily Returns

Western Digital  vs.  HONEYWELL INTL INC

Western Digital

Risk-Adjusted Performance

Very Weak

Over the last 90 days Western Digital has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound fundamental indicators, Western Digital is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

HONEYWELL INTL INC

Risk-Adjusted Performance

Very Weak

Over the last 90 days HONEYWELL INTL 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 newest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Western Digital and HONEYWELL

The main advantage of trading using opposite Western Digital and HONEYWELL positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Western Digital 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 Western Digital and HONEYWELL INTL 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.