Correlation Between GM and Honeywell International
Can any of the company-specific risk be diversified away by investing in both GM 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 GM and Honeywell International into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and Honeywell International, you can compare the effects of market volatilities on GM 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 GM with a short position of Honeywell International. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and Honeywell International.
Diversification Opportunities for GM and Honeywell International
0.86 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between GM and Honeywell is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Honeywell International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Honeywell International and GM 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 General Motors 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 GM i.e., GM and Honeywell International go up and down completely randomly.
Pair Corralation between GM and Honeywell International
Allowing for the 90-day total investment horizon General Motors is expected to generate 1.74 times more return on investment than Honeywell International. However, GM is 1.74 times more volatile than Honeywell International. It trades about 0.05 of its potential returns per unit of risk. Honeywell International is currently generating about 0.03 per unit of risk. If you would invest 3,762 in General Motors on September 3, 2024 and sell it today you would earn a total of 1,797 from holding General Motors or generate 47.77% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 98.14% |
| Values | Daily Returns |
General Motors vs. Honeywell International
Performance |
| Timeline |
| General Motors |
| Honeywell International |
GM and Honeywell International Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GM and Honeywell International
The main advantage of trading using opposite GM and Honeywell International positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM 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 General Motors 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.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 Companies Directory module to evaluate performance of over 100,000 Stocks, Funds, and ETFs against different fundamentals.
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