Correlation Between Honeywell International and Verizon Communications
Can any of the company-specific risk be diversified away by investing in both Honeywell International and Verizon Communications 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 International and Verizon Communications into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Honeywell International and Verizon Communications, you can compare the effects of market volatilities on Honeywell International and Verizon Communications 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 International with a short position of Verizon Communications. Check out your portfolio center. Please also check ongoing floating volatility patterns of Honeywell International and Verizon Communications.
Diversification Opportunities for Honeywell International and Verizon Communications
0.1 | Correlation Coefficient |
Average diversification
The 3 months correlation between Honeywell and Verizon is 0.1. Overlapping area represents the amount of risk that can be diversified away by holding Honeywell International and Verizon Communications in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Verizon Communications and Honeywell International 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 International are associated (or correlated) with Verizon Communications. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Verizon Communications has no effect on the direction of Honeywell International i.e., Honeywell International and Verizon Communications go up and down completely randomly.
Pair Corralation between Honeywell International and Verizon Communications
Assuming the 90 days trading horizon Honeywell International is expected to generate 0.79 times more return on investment than Verizon Communications. However, Honeywell International is 1.26 times less risky than Verizon Communications. It trades about -0.12 of its potential returns per unit of risk. Verizon Communications is currently generating about -0.54 per unit of risk. If you would invest 473,500 in Honeywell International on September 29, 2024 and sell it today you would lose (9,900) from holding Honeywell International or give up 2.09% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Honeywell International vs. Verizon Communications
Performance |
| Timeline |
| Honeywell International |
| Verizon Communications |
Honeywell International and Verizon Communications Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Honeywell International and Verizon Communications
The main advantage of trading using opposite Honeywell International and Verizon Communications positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Honeywell International position performs unexpectedly, Verizon Communications 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 Verizon Communications will offset losses from the drop in Verizon Communications' long position.| Honeywell International vs. iShares Global Timber | Honeywell International vs. Vanguard World | Honeywell International vs. iShares Trust | Honeywell International vs. iShares Trust |
| Verizon Communications vs. ATT Inc | Verizon Communications vs. Vodafone Group Plc | Verizon Communications vs. Telefnica SA |
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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.
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