Correlation Between Eaton PLC and Honeywell International
Can any of the company-specific risk be diversified away by investing in both Eaton PLC 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 Eaton PLC and Honeywell International into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Eaton PLC and Honeywell International, you can compare the effects of market volatilities on Eaton PLC 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 Eaton PLC with a short position of Honeywell International. Check out your portfolio center. Please also check ongoing floating volatility patterns of Eaton PLC and Honeywell International.
Diversification Opportunities for Eaton PLC and Honeywell International
0.07 | Correlation Coefficient |
Significant diversification
The 3 months correlation between Eaton and Honeywell is 0.07. Overlapping area represents the amount of risk that can be diversified away by holding Eaton PLC and Honeywell International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Honeywell International and Eaton PLC 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 Eaton PLC 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 Eaton PLC i.e., Eaton PLC and Honeywell International go up and down completely randomly.
Pair Corralation between Eaton PLC and Honeywell International
Assuming the 90 days horizon Eaton PLC is expected to under-perform the Honeywell International. In addition to that, Eaton PLC is 1.9 times more volatile than Honeywell International. It trades about -0.11 of its total potential returns per unit of risk. Honeywell International is currently generating about -0.1 per unit of volatility. If you would invest 21,205 in Honeywell International on November 8, 2024 and sell it today you would lose (1,035) from holding Honeywell International or give up 4.88% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 95.65% |
| Values | Daily Returns |
Eaton PLC vs. Honeywell International
Performance |
| Timeline |
| Eaton PLC |
| Honeywell International |
Eaton PLC and Honeywell International Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Eaton PLC and Honeywell International
The main advantage of trading using opposite Eaton PLC and Honeywell International positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Eaton PLC 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.| Eaton PLC vs. Cal Maine Foods | Eaton PLC vs. Nomad Foods | Eaton PLC vs. PATTIES FOODS | Eaton PLC vs. NH Foods |
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Check out your portfolio center.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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.
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