Correlation Between Emerson Electric and Honeywell International
Can any of the company-specific risk be diversified away by investing in both Emerson Electric 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 Emerson Electric and Honeywell International into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Emerson Electric Co and Honeywell International, you can compare the effects of market volatilities on Emerson Electric 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 Emerson Electric with a short position of Honeywell International. Check out your portfolio center. Please also check ongoing floating volatility patterns of Emerson Electric and Honeywell International.
Diversification Opportunities for Emerson Electric and Honeywell International
0.71 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Emerson and Honeywell is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Emerson Electric Co and Honeywell International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Honeywell International and Emerson Electric 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 Emerson Electric Co 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 Emerson Electric i.e., Emerson Electric and Honeywell International go up and down completely randomly.
Pair Corralation between Emerson Electric and Honeywell International
Assuming the 90 days trading horizon Emerson Electric is expected to generate 1.33 times less return on investment than Honeywell International. But when comparing it to its historical volatility, Emerson Electric Co is 1.12 times less risky than Honeywell International. It trades about 0.03 of its potential returns per unit of risk. Honeywell International is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest 397,267 in Honeywell International on September 19, 2024 and sell it today you would earn a total of 71,333 from holding Honeywell International or generate 17.96% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 99.8% |
| Values | Daily Returns |
Emerson Electric Co vs. Honeywell International
Performance |
| Timeline |
| Emerson Electric |
| Honeywell International |
Emerson Electric and Honeywell International Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Emerson Electric and Honeywell International
The main advantage of trading using opposite Emerson Electric and Honeywell International positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Emerson Electric 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.| Emerson Electric vs. 3M Company | Emerson Electric vs. The Select Sector | Emerson Electric vs. Promotora y Operadora | Emerson Electric vs. iShares Global Timber |
| Honeywell International vs. 3M Company | Honeywell International vs. Emerson Electric Co | Honeywell International vs. The Select Sector | Honeywell International vs. Promotora y Operadora |
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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.
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